Bill Gross still trades daily, PIMCO's Jerome Schneider says. (Photo: Jim Tweedie)

Here’s what could be one of PIMCO’s worst-kept secrets: its portfolio managers are not just portfolio managers. They also spend nearly half of their time trading.

“Being in the trenches is one of PIMCO’s secrets,” reported Jerome Schneider, managing director in PIMCO’s Newport Beach, California headquarters, who runs the short-term trading desk. Speaking Thursday at the Morningstar ETF Conference in Chicago, Schneider reported that trading takes up 40% to 50% of his day.

“Even Bill Gross trades to this day,” he said.

Schneider’s general session presentation focused on PIMCO’s “new neutral” strategy and the role of active management.

“What makes a good active manager?” asked Schneider.

“For an active ETF to be successful, you have to have an investment process,” Schneider added. “You have to have the understanding from the top down: what’s going to impact the portfolio, understanding regulatory pressures, understanding secular pressures, understanding global growth trends and inflation pressures, understanding demographics.”

ETFs began as passive index products, but active ETFs really got their start in fixed income and have only started to come to prominence over the past five years.

“It’s a transformational period right now,” he said. “We have to think about … how fixed income can be a core attribute in the portfolio allocation, even in volatile times, even in situations where interest rates may be increasing over the next few years.”

Schneider argued that fixed income still has a place in investment allocations, and he pointed to the volatility difference between bonds and stocks.

“Even in crises, the declines you would see in a bond portfolio are minuscule compared to what you would see in a more equity-oriented portfolio,” he said. “For us and investors, and PIMCO is now obviously in both stocks as well as bonds, we look at both in terms of portfolio allocation. Even when you might have a mark-to-market loss and are thinking about higher interest rates, there’s still reason to have fixed income within your portfolio.”

Schneider also touched on PIMCO’s new neutral forecast — an investment thesis that basically calls for a neutral policy rate at 2% over the next three to five years — which has been a popular topic for PIMCO up for debate and discussion since Gross’ May investment outlook.

“I don’t want to be in typical PIMCO fashion and paint a really negative picture. We’re actually fairly optimistic,” Schneider said, adding, “For us, we think the economy is steadily improving in the U.S.“

Schneider pointed at an improvement in consumer confidence, a rise in household net worth and that debt service is now at 30-year lows.

“People have extra money in their pockets to do things such as support housing, capital expenditures, perhaps replace those cars that are now [on average] more than 14 years old,” Schneider said. 

See all of ThinkAdvisor’s reporting from the Morningstar ETF 2014 conference.