Active exchange traded funds (ETFs) have continued to garner plenty of attention this year as many investors realize their benefits. Also, realizing their benefits have been legacy asset managers. New fund launches tailored to the current market have surged so far in 2023. The latest and prime example of this has been PIMCO.
PIMCO was one of the first asset managers to embrace active ETFs long before the current upswing of activity. Its latest launches underscore investors’ need and desire for yield.
All in all, its two new funds could be launched at just the right time and become wonderful tools for fixed income portfolios.
A Long History of Active Funds
When it comes to fixed income, Pacific Investment Management Company (PIMCO) knows a thing or two. Founded by Bond King Bill Gross, the asset manager has become an “authority on bonds” and the vast bulk of its assets under management cover various fixed income securities. This includes its suite of ETFs.
PIMCO launched its first ETFs back in 2009, which included several index funds. But where PIMCO was a trend setter is in the world of active ETFs – launching some of the first funds using active management. Two of those ETFs still exist today – the PIMCO Enhanced Short Maturity Active ETF and the PIMCO Intermediate Municipal Bond Active ETF. Incidentally, both funds are two of the largest funds in their respective categories, active or otherwise. As is the PIMCO Total Return ETF.
Since then, the firm has expanded on its suite of ETFs. And while there have been a few closures, PIMCO has gotten it right more than not. Which is why its two new funds could be big hits.
Two Smart Launches
More recently, PIMCO added two more fixed income active ETFs to its line-up. The PIMCO Multisector Bond Active ETF (PYLD) and the PIMCO Ultra Short Government Active ETF (BILZ) are two very different funds. But both PYLD and BILZ offer exactly what investors are clamoring for in the current market environment. 1
Thanks to the Fed’s path of interest rate hikes, cash, T-bills and other very short debt instruments are now yielding close to 5%. Investors’ interest in money market and ultra short-term bonds has grown exponentially over the last year, particularly with recession risks rising. Recent worries about bank solvency and FDIC limits in the wake of Silicon Valley and First Republic Bank have also sent investors out of banks and into other cash holdings.
BILZ taps into these trends. The ETF will invest in high-quality U.S. government-related short-term assets like T-Bills as well as other federal agency debt, such as Freddie Mac and Fannie Mae issues to provide cash-like returns. The active management comes in as PIMCO can actively choose how to maximize yield, while still preserving capital. The ETF charges just 0.14% and currently yields 5.12%.
PYLD also taps into investors’ current needs. Thanks to the bond rout of 2022 and the general malaise the sector has had so far this year, there are a lot of fixed income securities that offer high yields – bargains abound. And this is precisely where the PIMCO Multisector Bond Active ETF can win.
The problem with previously mentioned PIMCO Total Return ETF is that as an intermediate bond fund, it’s limited in the kind of assets it can own: U.S. government debt, MBS and investment-grade corporate bonds. PYLD is considered a “go-anywhere fund.” As the name implies, it can own any fixed income security, from investment-grade corporates and junk bonds to bank loans and emerging market debt. The idea is to take strategic bets while maximizing yield potential and long-term capital appreciation.
The ETF is managed by PIMCO’s Managing Director and Group Chief Investment Officer, Dan Ivascyn. After Bill Gross left PIMCO, Ivascyn sort of took up the former bond king’s mantle at the asset manager and took over several of Gross’ funds. Ivascyn’s PIMCO Income Fund is the largest actively managed fixed income fund at nearly $126 billion in assets. PYLD will be managed in much the same way.
Expanding the Already Strong Fund Lineup
With its two launches, PIMCO could have another round of hits on its hands.
BILZ solves several problems for investors and offers a cash-like portfolio when these assets are in high demand. Moreover, the fund could gather some serious assets as PIMCO moves some of its separately managed account assets into the ETF.
PYLD could also find a real foothold among investors. When the Total Return ETF launched, Gross used a similar strategy as his flagship mutual fund. However, the ETF managed to outperform the mutual fund. Not only on the expense and tax front, but Gross was also able to take smaller and more calculated bets in the ETF. One of the killers of large mutual funds remains asset bloat. Managers are limited as to what they can buy when they have moved billions of dollars around – not so with a smaller fund.
Given the hunt for yield, current values in the fixed income sector, and Ivascyn’s talent, PYLD might go on to be a wonderful portfolio addition.
PIMCO Active ETFs
| Ticker | Name | AUM | YTD Price Ret (%) | Exp Ratio | Security Type | Actively Managed? |
|---|---|---|---|---|---|---|
| LONZ | PIMCO Senior Loan Active Exchange-Traded Fund | $176.6M | 2% | 0.72% | ETF | Yes |
| MINT | PIMCO Enhanced Short Maturity Active Exch Tr | $9.218B | 0.9% | 0.35% | ETF | Yes |
| MINO | PIMCO Municipal Income Opportunities Active ETF | $80.3M | 0.8% | 0.4% | ETF | Yes |
| MUNI | PIMCO Intermediate Municipal Bond Active ETF | $1.004B | -0.2% | 0.35% | ETF | Yes |
| SMMU | PIMCO Short Term Municipal Bond Active Exch Tr Fd | $532.3M | -0.2% | 0.35% | ETF | Yes |
| LDUR | PIMCO Enhanced Low Duration Active Exchange-Traded | $1.01B | -0.4% | 0.46% | ETF | Yes |
| BOND | PIMCO Active Bond Exchange-Traded Fund | $3.661B | -0.6% | 0.55% | ETF | Yes |
| CMDT | PIMCO Commodity Strategy Active ETF | $213.4M | NA | 1.16% | ETF | Yes |
The Bottom Line
As one of the first active ETF adopters, PIMCO has a long history of giving investors what they want in an active package. The firm’s latest two launches continue that legacy. With its new ETFs, investors have targeted and active approaches in finding yield and cash-like safety. Given their attributes, both funds should gather assets quickly and become hits. And, that is wonderful news for investors.
1 PIMCO (June 2023). PIMCO Launches Two Active Fixed Income ETFs