The PIMCO Active Bond ETF (NYSEArca: BOND) is one of the largest actively managed exchange traded funds and that management style could serve fixed income investors well as the Federal Reserve continues boosting interest rates.
Traditional, market capitalization-weighted bond index ETFs weight individual securities by debt issued, so the most indebted issuer or those that issue more debt will have a higher weight. For instance, in the benchmark Bloomberg Barclays Aggregate Bond Index, government debt, especially U.S. Treasuries, has dominated the portfolio.
“The ETF previously shared a name and investment team with the firm’s flagship, PIMCO Total Return. However, in May 2017, the fund got a new name, a new strategy, and a new management team,” said Morningstar.
BOND’s transition has been pleasantly smooth.
“While such changes can be cause for alarm, PIMCO has been thoughtful about this fund’s new mandate and has carved out a niche separate from PIMCO Total Return,” according to Morningstar. “Under its new guise, the fund is focused on income, which sets it apart from the flagship fund’s total return mandate. In keeping with this focus, the fund has increased flexibility to invest in high-yield, which can now reach to 30% of the portfolio.”
Strategy Behind ‘BOND’ ETF
The $1.88 billion BOND holds nearly 750 issues with an effective duration of 5.87 years. About 91% of BOND’s holdings have maturities of three to five years or five to 10 years.
“The new team is also well suited to the fund’s approach with members offering complementary skill sets,” said Morningstar. “Dan Hyman is a mortgage expert; David Braun heads up the firm’s U.S. financial institutions group portfolio management team and also has experience managing tax-aware and income-focused portfolios; finally Jerome Schneider, a past winner of Morningstar’s Fund Manager of the Year award, brings expertise in managing liquidity and active ETF portfolios. The three managers are supported by PIMCO’s usual depth of analytical resources.”
Related: Top 56 High Yield Bond ETFs
Over 71% of BOND’s holdings are Treasuries or mortgage-backed securities (MBS). The fund also allocates 27% to investment-grade corporate debt.
Morningstar has a Silver rating on BOND.
For more information on the bond market, please visit our Fixed Income Channel.