On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research Todd Rosenbluth discussed the PIMCO Active Bond Exchange-Traded Fund (BOND) with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.
Chuck Jaffe: One fund, on point for today… The expert to talk about it… This is the ETF of the Week. Welcome to the ETF of the Week, where we get the latest take from Todd Rosenbluth, the Head of Research at VettaFi. And if you go to VettaFi.com, you will find all the tools you need to be a savvier, smarter ETF investor, and to get more details on the new, newsworthy, trending, and timely ETFs that we talk about here.
Todd Rosenbluth, it’s great to chat with you again.
Todd Rosenbluth: It’s great to be with you again, Chuck. How are you?
Chuck Jaffe: I’m well. And I have a question for you. Your ETF of the Week is…
Todd Rosenbluth: The PIMCO Active Bond ETF. Ticker: BOND.
Chuck Jaffe: The PIMCO Active Bond ETF. Ticket BOND, the original active bond ETF. You know, normally they say that active bond ETFs do better when rates are going up. So, why this ETF now?
Todd Rosenbluth: Well, we think active bond ETFs can do well in both a rising and a falling rate environment, in part because of that uncertainty. That uncertainty that we’re currently in, there’s expectations that the Fed is going to cut interest rates at some point during the next few months – maybe once, maybe twice. The maybe is the part of why I want to turn into an active manager.
And certainly, PIMCO has the experience, the broad team, and the expertise to help us sort through how to position a portfolio heading into the rest of the year. So, that’s why BOND is my spotlight this week.
Chuck Jaffe: Now it’s interesting the timing of this pick, because of course in my other job, I’m a columnist at MarketWatch. And my MarketWatch colleague, Mark Hulbert, well, he wrote a piece this past weekend that was looking at active bond ETFs. And he basically said, you can justify owning them, but if your justification is that they do better during rising rate environments — that classic argument — they don’t, and they don’t do better in falling rate environments either.
So, why go with an active ETF as opposed to going with the more sure thing of an indexed ETF?
Todd Rosenbluth: So, it’s hard for active management to outperform an index. Whether that’s the equity markets, or that’s the fixed income markets. But this ETF from PIMCO actually is outperforming. When I was looking at Morningstar data before we recorded this, BOND was outperforming on a one-year, a three-year, a five-year, and a ten-year basis, the category that it’s compared to as well as the index.
Now, it won’t always and it won’t continue to do so every time period. But we like the flexibility of an active manager. We think if you’re going to go with an active manager, you have to have confidence in their expertise in how they’re building a portfolio, and you need to understand how it’s being positioned. And what we like is that BOND, they’re taking on, or they were taking on a little bit less interest rate risk.
So, they weren’t necessarily playing the Fed’s next move, although they have that flexibility. But where they were adding value was through taking on credit risk within the investment grade category and being able to look internationally. That’s one of the flexibilities that this and some of the other bond ETFs, active bond ETFs offer. So that’s why we think now is a good time to take a closer look at BOND.
Chuck Jaffe: Because this is a go-anywhere fund with the kind of flexibility you talk about. You can have this fund and have it be the bond portion of your portfolio. I mean, you can make this not just a core, but the position. Do you suggest that some investors might want to do that? Obviously, you’re in the business of doing ETF research and you research a lot of bond ETFs.
I know you don’t want to throw away all the research here, but for somebody who’s trying to keep it simple, stupid. Is this your bond ETF, if you’re saying, “I need to get bonds, I don’t have any, and this will do everything for me?”
Todd Rosenbluth: So this fund could very well be the core of your fixed income allocation. And perhaps you want to augment that by taking on additional credit risk and adding a little bit more income. This is going to focus on the investment-grade space. So that’s why it makes sense for a core area of the marketplace, and has that flexibility.
We certainly find that some advisors are combining active and index-based strategies. Owning an iShares and a Vanguard low-cost index-based product, and pairing that with an actively managed ETF from Pimco. Because bonds are different. And you’re certainly going to get the benefits of the active management landscape and the tools that are available using this PIMCO product.
But, you might also want to pair that with a lower cost index based product. And I want to — I know we’re probably only going to get a couple more questions in. Boy, you got to love the ticker. BOND. It’s – I’m intentionally spelling it out each time for you and the audience because the word bond just rolls off the tongue as we’re talking about the fixed income marketplace.
And that ticker, BOND, showcases why this can be a core part of a portfolio.
Chuck Jaffe: It does roll off the tongue…
James Bond: Bond. James Bond.
Chuck Jaffe: But it is not a secret agent in your portfolio. In fact, it is the biggest, kind of best-known active fund. It was, of course, Bill Gross’s fund when Bill was at PIMCO. And of course, they haven’t missed a beat. When you look at how the fund did after he left. In fact, his performance was far worse than the performance of his former managers at PIMCO.
But since we are talking about active, I am curious. How deep is the pool of active managers that you would use on the bond side of things? I mean, this is the best known, but are there a lot of active managers? To your point, this one might be worth it. To Mark Hulbert’s point, they’re not worth it. Are there a lot of active managers in the bond space, or generally in the bond space, do you prefer active management to passive?
Todd Rosenbluth: David Braun is the lead portfolio manager for this fund. We at VettaFi have done some educational content with him, and he’s top-notch. And we have high confidence in him and his team to build a portfolio that, clearly as you mentioned, it has worked. We think it will continue to add value for advisors and investors, but the space is certainly getting more crowded.
We’ve seen a growing number of large asset managers enter into the ETF marketplace. They have their capabilities and strengths. And they can bring that now into the ETF marketplace and make that easier for investors to access the tax efficiency, the liquidity benefits that come with active ETFs. But those newer funds don’t have that ten-year track record that the ticker BOND has.
So, for folks that want to have confidence in how a fund has performed in those up and down, rising interest rates, falling rates, and environments, you can look at that history with the David Braun-run Pimco Active Bond ETF.
Chuck Jaffe: Normally, one of the questions I ask you is how this fits into a portfolio. And, of course, lots of people will have bond funds. This is a core bond fund. In terms of, if someone wants to take your advice and add it to a portfolio. If somebody already has an active bond ETF, and it’s not this one, do you want to add it together? Because, you know, in the stock side of things, if you have a bunch of funds in the same space, you have a closet index fund.
But in the bond space, it’s even more homogenous. So, is this only an add for people who either have no bond exposure or whose core bond fund is an index fund?
Todd Rosenbluth: So you probably don’t want to have too many active funds that are in this same investment style. But it’s important to take advantage of looking inside the portfolio and see how a fund is positioned. Get the benefits of that skill set and that expertise. And it matters if the fund — if the active bond fund that you’ve chosen, whether that’s a mutual fund or an ETF, is not keeping up with the broader benchmark, let alone outperforming it, you might want to replace it. Or you might want to pair it with another fund to diversify away from the risk of an individual management team.
So, this is a good fund. I think it can fit into lots of different scenario portfolios.
Chuck Jaffe: It’s BOND. PIMCO Active Bond ETF. It’s the ETF of the Week from Todd Rosenbluth, the Head of Research at VettaFi. Todd, always a pleasure. We’ll talk to you again next week.
Todd Rosenbluth: I’ll see you next time. Chuck.
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yes, that’s me. You can learn all about my hour-long, weekday show by going to your favorite podcast app, or by going to MoneyLifeShow.com. By the way, if you’re searching for great information on exchange traded funds, look no further than VettaFi.com, where they have all the tools you need to be a better investor.
They’re on Twitter at @Vetta_Fi, and Todd Rosenbluth, their Head of Research, my guest, he’s on X as well. He’s at @ToddRosenbluth. The ETF of the Week is here for you every Thursday. We’ll see you again next week. And until then, happy investing everybody.
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