ETF Trends CEO Tom Lydon discussed the PIMCO Enhanced Low Duration Active ETF (LDUR) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.
LDUR is a diversified portfolio of high quality bonds that is actively managed to limit interest rate exposure while maximizing returns in a risk-controlled framework. The fund offers a conservative core bond strategy that is designed to capitalize on opportunities across multiple sectors of the fixed income market. The average portfolio duration is typically between 1 and 3 years.
As Lydon explains, the reason to look at low duration comes for a couple of reasons. Getting towards 2020 means everyone is a little concerned for possible headwinds, such as a possible recession. Looking at an investor’s total portfolio, the fixed income component is essential, along with the cash or money market component.
In addition, with Schwab buying TD Ameritrade, making the big discount brokerage firms growing that much larger, it is important to note how the money market fund component at these companies don’t pay that much. Banks have to be competitive to pay up and be able to get deposits. Brokerage companies, on the other hand, aren’t always that competitive in that regard, and that’s actually how they make a lot of their profits.
Substitute To A Money Market Fund
“With that in mind, if you have a brokerage account, and you do have a money market fund balance, first and foremost, make sure you know what that yield is,” Lydon explains. “In many cases, it might be something like a half a percent. Today in bringing up LDUR, it’s really a substitute to a money market fund. It’s safe, it’s got an effective duration of just two years, but most importantly, the yield on this currently is two and a quarter percent, which is really competitive.”
Keeping that in mind, every dollar made is important. Safety is vital as well. However, if an investor can make another percentage on their money market fund balance, that will add up over time.
With PIMCO being one of the best fixed income managers in the world, that does a lot for the ETF space specific to short term, low duration safety, and they have a variety of ETFs that fit the bill. LDUR is something to consider if investors are actually holding high money market fund balances.
In many cases, aside from trend following, putting focus towards LDUR is about considering an investor’s safe money. One has to ask if its okay to have money one wants to keep safe, where the goal is a better yield, especially on a day to day basis, as this is an ETF with a price that will fluctuate.
Related: ETF of the Week: ProShares Russell 2000 Dividend Growers ETF (SMDV)
“If you’ve got money that you’re not going to touch for six months or a year, but you don’t want to expose it to the market, this is a great alternative for you, and you’re going to get a competitive yield.”
When asked how to allocate money for this ETF, Lydon notes that finding the money market alternative to the brokerage account to be competitive, paying close to 2 percent is great, as there’s no need to find an alternative. However, if it’s paying under one percent, then looking at LDUR and putting all the money in it will not be deemed too risky, because it’s a pure money market alternative.
Still, the price will fluctuate a little day in and day out. If an investor is looking to make money overnight or over a week, don’t be disappointed if what’s being taken out is a little bit less.
Hear Tom Lydon Discuss LDUR
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