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Portfolio > ETFs

PIMCO Launches Corporate, Build America Bond ETFs

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PIMCO said its two new exchange-traded funds, the PIMCO Build America Bond Strategy Fund (BABZ) and the PIMCO Investment Grade Corporate Bond Index Fund (CORP), began trading on Tuesday.

The BAB fund, trading near $50.70 on Wednesday, is an actively managed ETF that excludes municipalities with poor credit quality. The corporate bond fund, trading close to $100.60 on Wednesday, is an index fund that tracks the Bank of America-Merrill Lynch U.S. Corporate Index.

“These new funds broaden investor access to two important fixed income areas — Build America Bonds and investment-grade corporate bonds — using the efficient, transparent ETF format,” said Tammie Arnold, managing director and head of PIMCO’s global ETF business, in a statement.

The bond shop now has four active ETFs and eight index ETFs. PIMCO says that although the BAB program is scheduled to expire at the end of 2010, the firm is optimistic the program will be extended.

The BAB Fund seeks to capture attractive yield opportunities in municipal-bond sector while also avoiding securities from municipalities that PIMCO believes face deteriorating credit quality.

It is managed by John Cummings, executive vice president and head of PIMCO’s municipal bond desk. The management fee is 0.45%, and the total annual operating expense is 0.55%.

The new corporate bond ETF aims to track its benchmark index “with an optimized exposure to investment grade U.S. corporate debt issues that are primarily component securities of the benchmark” and “avoid those securities that the firm believes may be hard to trade or deemed to have the highest risk of credit loss,” the company said in a press release.

This fund is managed by Vineer Bhansali, managing director. Its management fee is 0.20%, while its total annual management fee is 0.32%.

“As with all PIMCO investment products, our ETFs benefit from PIMCO’s nearly four decades of investment management experience, strong analytics and risk management expertise,” Arnold explained in a statement.

PIMCO’s CEO and Co-CIO Mohamed A. El-Erian recently told Bloomberg in a radio interview that business at the bond shop is “booming,” which is not a good sign for the U.S. economy.

El-Erian said that net inflows into bond funds reached $120 billion in the first eight months of 2010.

The PIMCO Total Return Fund, for instance, attracted $2 billion in June and the same amount in July, according to the Financial Research Corp. It now has about $240 billion in assets, says FRC.

“It has a bad impact on the economy as a whole,” El-Erian said in the Bloomberg interview. “The average investor is de-risking their portfolio, moving from equities into cash and bonds and that is not a good sign for the economy if people become more and more risk- averse.”

The bond shop recently made its own push into equities, introducing the PIMCO Equity Series Pathfinder Fund in April, its first active equities product. In addition, it plans to offer four or five more new global equities strategies over the next few years, according to Neel Kashkari, head of PIMCO’s investment initiatives, who spoke with Reuters earlier this month.


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