PIMCO Rounds Out Treasury ETFs With ZROZ, FIVZ

by on November 2, 2009 | ETFs Mentioned:

Newport Beach, California-based PIMCO, one of the largest bond fund companies in the world, has made two additions to its small but growing line of fixed income exchange-traded funds. The PIMCO 3-7 Year U.S. Treasury Index Fund (FIVZ) completes the lineup of products covering key rate segments of the Treasury market, fitting between PIMCO’s 1-3 Year Treasury Index Fund (TUZ) and 7-15 Year U.S. Treasury Fund (TENZ). FIVZ will track the BofA Merrill Lynch 3-7 Year U.S. Treasury Index, a benchmark that measures the performance of U.S. government debt with at least $1 billion in outstanding face value and a term to maturity of between three and seven years.

PIMCO also announced the launch of the 25+ Year Coupon U.S. Treasury Index Fund (ZROZ), which tracks the BofA Merrill Lynch Long U.S. Treasury Principal STRIPS Index. STRIPS are government debt issues whose interest and principal portions have been split in order to be sold separately. STRIPS aren’t issued directly by the government, but rather formed by investment banks and brokerage firms and sold in the secondary market. Because there is no coupon payment associated with STRIPS, these securities offer a high duration, making them an efficient way to gain exposure to interest rate movements without the use of leverage.

PIMCO’s new ETFs will face some stiff competition from existing products offered by iShares and Vanguard. While the PIMCO products will initially have much smaller asset pools and trading volumes, they will certainly benefit from PIMCO’s expertise in the management of Treasuries, as well as competitive expense ratios.

Ticker ETF Expense Ratio
FIVZ PIMCO 3-7 Year U.S. Treasury Index Fund 0.15%
IEI iShares Barclays 3-7 Year Treasury Bond Fund 0.15%
ZROZ PIMCO 25+ Year Coupon U.S. Treasury Index Fund 0.15%
EDV Vanguard Extended Duration Treasury ETF 0.14%

In addition to the four Treasury funds, PIMCO also offers several ETFs focusing exclusively on inflation-protected securities. The line of TIPS ETFs covers all durations, and includes the 1-5 Year U.S. TIPS Index Fund (STPZ), 15+ Year TIPS Index Fund (LTPZ), and the Broad U.S. TIPS Index Fund (TIPZ). PIMCO’s products have seen a warm reception from investors, with total assets in the seven ETFs approaching $200 million only five months after inception.

Disclosure: No positions at time of writing.