PIMCO, the bond fund giant that has quickly become a major player in the fixed income ETF space, is looking to expand its ETF presence even further. The Newport Beach, California-based firm has filed for SEC approval on six new bond ETFs, including:
- PIMCO 0-3 Year Banking Sector Corporate Bond Index Fund: This ETF would be based on an index consisting of investment grade corporate debt securities issued by banking institutions with remaining maturities less than three years. Vanguard currently offers an ETF focusing on short-term corporate bonds (VCSH), but funds targeting debt issues from a specific sector would be an industry first.
- PIMCO 1-5 Year High Yield Corporate Bond Index Fund: This proposed fund would seek to track an index comprised of below investment grade corporate debt (based on the average rating from S&P Moody’s, and Fitch) with at least one year and less than five years remaining until maturity. This fund would also represent a new level of granularity in the fixed income space; holdings of existing junk bond ETFs are spread across the maturity spectrum.
- PIMCO Emerging Markets Aggregate U.S.$ Denominated Bond Index Fund: This ETF would be linked to the BofA Merrill Lynch US Emerging Markets Sovereign & Credit Plus Index, a benchmark comprised of U.S. dollar denominated emerging market and crossover sovereign, quasi-government and corporate debt securities with at least one year remaining term to final maturity. Currently, the iShares JP Morgan Emerging Markets Bond Fund (EMB) and PowerShares Emerging Markets Sovereign Debt Portfolio (PCY) offer exposure to debt issued by governments of the developing world.
- PIMCO High Yield Corporate Bond Index Fund: This fund would track an index consisting of corporate debt securities rated below investment grade (again, based on the average rating of the “big three” ratings agencies) with at least one year remaining until maturity. A high yield bond fund from PIMCO would compete with existing products from State Street (JNK), iShares (HYG), and PowerShares (PHB).
- PIMCO Investment Grade Corporate Bond Index Fund: PIMCO also filed for approval on an ETF that would be linked to the BofA Merrill Lynch U.S. Corporate Index. This benchmark consists of debt securities with an investment grade rating and an investment grade rated country of risk. The iBoxx Investment Grade Corporate Bond Fund (LQD) is currently the most dominant fund in this space, maintaining more than $12 billion in assets.
- PIMCO Build America Bond Strategy Fund: Finally, PIMCO filed for an actively-managed fund focusing on taxable municipal debt securities issued under the Build America Bond program, which was was created as part of the American Recovery and Reinvestment Act of 2009. Under this program, the federal government essentially subsidizes 35% of the interest payments made by municipalities on taxable bonds. For example, if debt was issued with a 10% interest rate, Washington would cover 3.5% of that, thereby reducing financing costs for cash-strapped state and local governments. The Build America Bond program has been somewhat controversial, but very popular with investors (and for good reason as Matt Hougan recently pointed out). PowerShares launched it Build America Bond Portfolio in November, and assets have already grown to more than $180 million in assets.
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Disclosure: No positions at time of writing.