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New PIMCO Bond ETFs Focus on Low Debt, High Yield

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PIMCO said Tuesday that it introduced the first of three new country index exchange-traded funds, the PIMCO Australia Bond Index Fund (AUD), and will soon launch the PIMCO Canada Bond Index Fund (CAD) and the PIMCO Germany Bond Index Fund (BUND).

The three ETFs aim to allow investors “to capitalize on opportunities within three countries with balance sheets and debt dynamics that are currently well positioned to navigate the downside effects of slower global growth and ongoing national and personal deleveraging,” according to a press release put out by the bond shop, which is led by Mohamed El-Erian, who is also co-CIO.

“These new index ETFs are designed to help investors access select countries that may offer better risk-adjusted returns in this ‘new normal’ environment, and benefit from PIMCO’s trading and investment expertise in local markets,” said Tammie Arnold, managing director and global head of the firm’s ETF business, in a statement. “With ETFs, investors may benefit from convenient access to PIMCO’s capabilities as well as the portfolio transparency and intra-day pricing attributes of the ETF vehicle.”

The three ETF portfolios include government-issued debt instruments, as well as investment-grade credit issues in Germany and Australia. According to PIMCO, which was founded by co-CIO Bill Gross, the funds “seek to optimize trade execution, reduce transaction costs and minimize tracking error by avoiding bonds that are hard to obtain or at high risk of near-term default, while emphasizing bonds which may provide liquidity and market access.”

Australia, Canada and Germany currently have some of the strongest balance sheets among developed nations due to both internal and external factors, PIMCO says. Australia, for instance, is a large exporter of commodities and an important trading partner with emerging markets in Asia. Its currency is among the higher-yielding monetary units in both the developed and developing world.

Canada is one of the largest exporters of agricultural products, raw materials and oil, and has historically had a low debt burden, a growing economy and prudent fiscal management, while Germany is navigating the financial crisis more easily than its European counterparts and is the world’s second largest exporter as well as the largest economy in Europe.

The fund managers are: Rob Mead for the Australia ETF; Ed Devlin for the Canadian ETF and Lorenzo Pagani for the German ETF.

Over the past six months, the SPDR DB International Government Inflation-Protected Bond ETF (WIP) is down about 6%, while the PowerShares DB German Bund ETN (BUNL) is up 11%.


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