The bond shop, led by Mohamed El-Erian—who is also co-chief investment officer along with founder Bill Gross—says it created the exchange-traded fund so investors could “benefit from fundamental changes in global currency dynamics by diversifying away from the dollar.”
“The ongoing transition away from the dollar as the pre-eminent global reserve currency is continuing, and many competing currencies increasingly offer better yields and long-term credit dynamics,” said Scott Mather, one of three portfolio managers who will be in charge of the ETF, in a press release. “FORX is a purer way to gain foreign currency exposure and also avoids the unwanted exposures that can come with holding indirect currency plays such as equities or commodities.”
In addition to Mather, who is PIMCO’s head of global portfolio management, the FORX portfolio managers are Vineer Bhansali, head of quantitative investment portfolios, and Thomas Kressin, head of European foreign exchange.
Factors that can impact the U.S. dollar include rising debt levels, limited fiscal flexibility and quantitative easing or other U.S. monetary policies. The aim of FORX, according to PIMCO, is to help investors “preserve their purchasing power.”
In his February letter to investors, Gross compares America’s money economy to a supernova—a bright, shining star that suddenly burns out. “Today, at $56 trillion and counting, [U.S. credit] is a monster that requires perpetually increasing amounts of fuel, a supernova star that expands and expands, yet, in the process begins to consume itself.”
This has led to a “new normal,” PIMCO says, in which GDP growth has averaged around 2% annually rather than the 3.5% growth Americans have enjoyed over the previous 50 years.
PIMCO’s CEO says that the dysfunctional political process has left America with three big decisions, and failure to get them all right could knock the economy back into recession. He says America “must lift the debt ceiling, resolve the sequester and agree on a continuing resolution to keep the government running.”
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