From the April 2010 issue of Research Magazine • Subscribe!

April 1, 2010

Grail, Pimco Activate Fixed Income ETFs

As Grail adds two funds to its lineup, PIMCO debuts the PIMCO Short Term Municipal Bond Strategy Fund (SMMU).

Three newly introduced actively managed bond ETFs will compete in the growing fixed-income ETF marketplace.

Grail Advisors added the Grail McDonnell Intermediate Municipal Bond ETF (GMMB) and the Grail McDonnell Core Taxable Bond ETF (GMTB). And PIMCO debuted the PIMCO Short Term Municipal Bond Strategy Fund (SMMU).

The PIMCO muni-bond ETF holds short-term top-rated municipal bonds and is benchmarked against the Barclays Capital 1-3 Year Municipal Bond Index. The fund's annual expense ratio is 0.35 percent and the fund pays monthly income.

The new Grail McDonnell bond ETFs allow the portfolio managers unrestricted trading, but with transparency of holdings and intraday liquidity for investors.

McDonnell Investment Management, a Chicago-based fixed-income firm with around $13 billion in assets under management, is sub-advising both funds. Grail Advisors serves as the funds' manager.

"Both funds provide a kind of transparent, liquid and low-cost exposure to the bond market that should enable investors and financial advisors to implement strategies more effectively than they could with traditional fixed-income mutual funds," says William M. Thomas, CEO of Grail Advisors LLC.

Annual expenses for the Grail McDonnell Intermediate Municipal Bond ETF and the Grail McDonnell Core Taxable Bond ETF will be noticeably less than similarly managed mutual funds. Both of the funds will limit their maximum expense ratios to 0.35 percent annually. By comparison, the average expense ratio for the Morningstar Municipal National Intermediate category is 0.92 percent and the average expense ratio for the Morningstar Intermediate Term Bond category is 0.96 percent.

"In our opinion, combining the attractive features of investing in bond securities with the benefits of the ETF format is a near-perfect match," says Michael Kamradt, Chief Investment Officer for McDonnell. "More than that, we think this is an excellent time to bring our credit research process to market."

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