Newport Beach-based Pacific Investment Management Co. is expanding its move into exchange-traded funds.
Pimco, which has more than $900 million invested so far in 10 ETFs, has filed plans with the Securities and Exchange Commission to start six more funds.
The funds are set to focus on investments in bonds, Pimco’s specialty.
Like mutual funds, ETFs invest in stocks or bonds, with most tracking an index or set of stocks and bonds. Unlike mutual funds, ETFs trade like stocks with prices fluctuating during the day.
Pimco’s newest funds are set to target different segments of the bond market and expand the company’s current ETF lineup, which started in June.
“Moving into ETFs is a natural progression for Pimco,” said Don Suskind, who heads the company’s ETFs team.
Pimco, a unit of Germany’s Allianz SE, has $1 trillion in assets under management, mostly in mutual funds that invest in bonds for individuals and wealth management advisers.
The company also has a separate accounts business for institutional investors such as hedge funds, endowments and foundations.
The ETF market was born in the early 1990s but didn’t catch on until about 10 years ago. At the end of February, ETFs had $755.8 billion in investment money, up from $456.3 billion a year earlier, according to the National Stock Exchange, a New Jersey-based electronic exchange.
Pimco is among the more notable major fund companies to get into ETFs, said John Gabriel, an analyst at Chicago’s Morningstar Inc., which tracks investment funds.
“They’ve achieved a relatively high level of success with their first set of ETFs,” he said. “Pimco has a strong brand name within bonds and that seems to be resonating with investors.”
Passive ETFs
Pimco is doing what are known as passive EFTs, which mimic an index, as well as actively managed funds where managers pick and choose investments.
“Pimco has one of the best trading desks in the world,” Gabriel said. “These new (bond) ETFs will offer investors more ability to be nimble at a time when rates are low but are expected to start rising at some point.”
One of the six funds planned by Pimco will be actively managed.
Another is set to follow an index made up of investment-grade bonds issued by banks with maturities of three years or less.
Pimco also has in the works an index-based ETF to track short-term junk bonds, or corporate debt rated less than investment grade.
“We’re continuing to look for new ways to expand throughout the bond marketplace into areas we believe ETF investors have an interest and we can incorporate meaningful enhancements,” Pimco’s Suskind said.
Much of Pimco’s early foray into the market has been to provide investors with a set of funds covering key types of bonds.
“Considering they’ve launched a lot of ‘me too’ types of ETFs, Pimco has done very well,” said Scott Burns, director of ETF research at Morningstar. “They’ve already created enough of a presence to be considered a major player.”
Net Inflow
Out of 39 companies currently offering ETFs, Pimco has attracted the ninth-largest net inflow of investment money into its funds so far this year, according to Boston-based fund researcher Financial Products Research.
“In ETFs, Pimco is still relatively small and doesn’t have the breadth of many of the more established players,” said Rob Ivanoff, director of research at Financial Products Research. “But if you look at just the specific bond categories they’ve chosen to enter, each of their ETFs is in the top five in terms of popularity with investors.”
The company’s funds see a lot of trading, said Morningstar’s Burns.
“They’ve clearly been adopted by institutional investors,” he said.
In the past two months, about $300 million in net investments has flowed into Pimco’s existing 10 ETFs, according to Natalie Pickering, the company’s senior vice president and marketing strategist for ETFs.
She just joined the company after being recruited from the industry’s dominant player, BlackRock Inc.’s iShares ETFs.
“This will be Pimco’s first full year in the ETF market,” Pickering said. “As our funds become more seasoned, we expect them to gain even more traction with a broad spectrum of investors.”
