PIMCO was a latecomer to the ETF industry. But since wading into the ETF waters last year, the California-based bond giant, has rapidly built up its fixed income lineup, which now includes both actively-managed and passively-indexed products focusing on munis, investment grade corporate debt, Build America Bonds, and of course U.S. Treasuries. The company expanded its lineup even further this week, rolling out the Broad U.S. Treasury Index Fund (TRSY), bringing its total number of funds up to 13 [also read Ten Intriguing ETF Storylines].
The fund tracks the BofA Merrill Lynch Liquid US Treasury Index, a benchmark that tracks the performance of the three most recently issued 2-year, 3-year, 5-year, 7-year, 10-year, and 30-year U.S. Treasury notes and bonds. The fund’s fact sheet cites that these issues typically offer better liquidity to investors over their more seasoned counterparts, suggesting that this method may help to reduce investor transaction costs–by minimizing bid-ask spreads and premium/discount to NAV issues–which could be one of the reasons that the fund has a rock-bottom expense ratio of just 15 basis points [see Bond ETFs: 12 Stops Along The Risk/Return Spectrum].
Main Competition: PLW
While most funds in the Government Bonds ETFdb Category focus on securities of a specific maturity, TRSY will spread exposure across the curve. In that sense, it will be similar to the PowerShares 1-30 Treasury Ladder Portfolio (PLW), an existing ETF that offers investors exposure to the short, medium, and long sections of the yield curve. PLW tracks the Ryan/Mergent 1-30 Year Treasury Laddered Index, a benchmark that measures the potential returns of the U.S. Treasury yield curve based on approximately 30 equally weighted U.S. Treasury issues with fixed coupons, scheduled to mature in a proportional, annual laddered structure. Due to this approach, PLW has a much longer effective duration–10.4 years–than the new PIMCO fund, as the PowerShares laddered Treasury ETF allocates more of its portfolio to longer-term securities [see ETF Ideas For Deflation Defense].
PIMCO has had a great deal of success in the fixed income space, as the company’s sterling reputation and track record have helped to drive considerable inflows; currently four PIMCO ETFs have more than $100 million in assets. Among the most popular funds from the bond giant are two ETFs targeting the TIPS market: the 1-5 Year US TIPS Index ETF (STPZ) and the 15+ Year U.S. TIPS Index ETF (LTPZ). However, the company is probably best known in the ETF world for its actively-managed “money market plus” ETF, the PIMCO Enhanced Short Maturity Fund (MINT). If this broad Treasury fund is able to match these robust levels of growth in assets under management, PIMCO could have another winner on its hands in no time at all [see all of PIMCO's ETFs here].
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Disclosure: No positions at time of writing.