The ETF market has a new face and it's Pacific Investment Management Company (PIMCO).
The Newport Beach, Calif.-based firm is well-known for its diverse menu of fixed-income investments, like the PIMCO Total Return Bond Fund (PTTAX) which is managed by the firm's legendary co-founder Bill Gross. And now PIMCO is looking to replicate its success in managing mutual funds to the realm of ETFs.
The PIMCO 1-3 Year U.S. Treasury Index Fund (TUZ) began trading in early June. The fund focuses on U.S. Treasuries with short-term maturities and is benchmarked to the Merrill Lynch 1-3 Year U.S. Treasury Index. With maturities of one to three years, price fluctuations may be low relative to longer-dated bonds, yet yields may be generally higher than shorter-term instruments such as Treasury bills or government money market funds.
"PIMCO's new ETF platform provides investors with broader access to investment management services," says Mohamed A. El-Erian, PIMCO's chief executive officer and co-chief investment officer. "By launching our first ETF, PIMCO is diversifying the range of products that we offer to both long-standing and new clients around the world."
TUZ has a temporary fee waiver that reduces its annual expense ratio to 0.09 percent. After two years, TUZ's fund expenses are expected to have a small increase.
There are currently 14 U.S. government focused bond ETFs with an average expense ratio of 0.16 percent. The majority of these funds are managed by Barclays Global Investors (iShares) and State Street Global Advisors (SPDRs). With just over $12 billion, the iShares Barclays U.S TIPS Fund (TIP) is the largest among these.
PIMCO is expected to launch more ETFs to round out its suite of products. The firm was founded in 1971 and currently manages around $755 billion in assets.
Ron DeLegge is the San Diego-based publisher and editor of ETFguide.com and the radio host of the "Index Investing Show," which is broadcast nationally on Saturday afternoons and can be heard online at www.indexshow.com. Ron served as an investment and financial advisor for 11 years.