It has been nearly 30 years since the first U.S.-listed ETF began trading, so it is rare to find a new first for the industry to occur. Yet today, the PIMCO Active Bond ETF (BOND ) became the first active ETF to be traded from an actual booth on the New York Stock Exchange (NYSE) floor.
Most securities are traded digitally with the NYSE’s electronic trading system, Arca. But PIMCO’s ETF transfer to the exchange floor will create unique and exciting benefits for advisors and end clients. While electronic trading remains in place, the additional element of human oversight by a Designated Market Maker (DMM) provides trading support that will likely result in increased liquidity, improved price discovery, and reduced transaction costs for investors.
Actively managed ETFs can often trade less frequently and with wider spreads than index-based products due in part to the fact that there is no intraday transparency on what is inside the fund. A DDM should help to solve for these limitations.
PIMCO launched the first actively managed fixed income ETF in 2009 with the PIMCO Enhanced Short Maturity Active ETF (MINT ), an ultra-short fund with $10 billion in assets. However, the launch of BOND in 2012 was also a key milestone as the fund provides core bond exposure with all the benefits of an ETF. PIMCO has continued to expand its lineup, including adding an actively managed higher-yielding ETF, the PIMCO Senior Loan Active ETF (LONZ ), in June 2022.
Actively managed ETFs gathered $59 billion in the first ten months of 2022, equal to 12% of the industry’s net inflows, despite representing just 5% of ETF assets. Advisor adoption of active ETFs has accelerated this year due to market volatility and continued product expansion.
BOND is led and managed by David Braun and offers a compelling 5.1% 30-day SEC yield despite providing exposure to high quality intermediate-term bonds. The ETF recently had roughly half of its $3 billion of assets in securitized debt and an additional third in investment-grade rated corporate bonds, with modest exposure to other bond sectors, including developed international.
The recent median bid-ask spread for BOND was 0.07%, but it is expected that the transaction costs will shrink now that the PIMCO ETF is trading on the floor of the NYSE.
In 2023, additional ETFs are expected to begin trading on the floor of the NYSE with a DDM as asset managers seek to improve the investor experience with their active ETFs.
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