Active Bond ETFs to Help Preserve Your Capital

Jerome M. Schneider, Head of Short-Term Portfolio Management at PIMCO, joined ETF Trends publisher Tom Lydon to discuss short-term bond ETF options that investors and financial advisors can use for capital preservation.

For instance, PIMCO offers the PIMCO Enhanced Short Maturity Active ETF (NYSEArca: MINT) and the PIMCO Low Duration Active ETF, (NYSEArca: LDUR). While the two ETFs may sound similar in nature, the funds are very different.

“We want to offer clients access to the entire short-end of the curve,” Schneider told ETF Trends.

For example, Schneider explained that MINT is meant to be an incremental step outside of the money market funds. Investors would use the actively managed ETF for capital preservation or to take a defensive view on the market.

Click here to view the video interview on Youtube

MINT has an ultra-short 0.28 year duration and a 1.34% 30-day SEC yield. The short duration helps the fund navigate a rising rate environment – a 1% interest rate hike would only translate to about 0.28% decline – and still generate decent yields.

The enhanced short maturity active ETF holds a basket of mortgage securities 15.6%, investment-grade credit 78.1% and emerging market debt 2.9%. Top country weights include U.S. 54.4%, Japan 5.9%, South Korea 5.9%, U.K. 5.4%, Germany 4.4%, Switzerland 4.2% and France 3.8%. The majority of the portfolio is held in investment-grade debt, with only a little over 4% in speculative-grade and non-rated debt.

On the other hand, Schneider explained that LDUR takes greater global short-term focus that allows investors to preserve capital but with greater diversification. LDUR also comes with a slightly longer 1.41 year duration and a higher 1.60% 30-day SEC yield.