PIMCO, the bond fund giant that has recently made a splash in the ETF industry, is set to expand its line of U.S. Treasury ETFs, planning the introduction of two new funds: the PIMCO 3-7 Year U.S. Treasury Index Fund (FIVZ) and the PIMCO 20+ Year Zero Coupon U.S. Treasury Index Fund (ZROZ). FIVZ will track the Merrill Lynch 3-7 Year U.S. Treasury Index while ZROZ will track the Merrill Lynch Long STRIPS Index.
FIVZ will compete with the iShares Barclays 3-7 Year Treasury Bond Fund (IEI), a fund that tracks a similar benchmark with a relatively low expense ratio of 0.15%. FIVZ will charge an identical expense ratio when it begins trading.
ZROZ will also face some stiff competition, including the Vanguard Extended Duration Treasury ETF (EDV), which has about $75 million in assets and charges an expense ratio of 0.14%. These ETFs offer exposure to a segment of the Treasury market that has been extremely popular among investors historically. STRIPS are Treasuries whose interest and principal portions have been “stripped” and are sold separately in the secondary market. STRIPS aren’t issued directly by the U.S. government – rather they are packaged and sold by investment banks and brokerage firms.
In other PIMCO news, several sources are reporting that the company is looking into building its equity management business by hiring an entire team of managers. PIMCO has long been the dominant player in the bond management space, and its foray into the world of equities would certainly attract a great deal of interest (not to mention a great deal of cash).
Disclosure: No positions at time of writing.