PIMCO and Source are launching the first ETFs in Europe that provide actively managed exposure to the short-dated segment of the investment grade corporate bond market.
The PIMCO Low Duration US Corporate Bond Source UCITS ETF will invest in corporate bonds that are issued in US dollars, while the PIMCO Low Duration Euro Corporate Bond Source UCITS ETF will invest in Euro denominated corporate bonds.
The funds will actively invest in investment grade corporate bonds with a focus on corporate bonds with maturities of less than five years, with the average duration of the portfolio limited to between zero and four years. The fund managers will look to take advantage of opportunities in the market by actively managing exposure to individual industries, issuers and instruments. PIMCO security selection follows a rigorous process where every corporate bond is independently evaluated based on three screens: (1) a top-down assessment of the sector and regional attractiveness, (2) a bottom-up assessment of the company, and (3) valuation assessment across instruments and capital structure. These ETFs are being managed by the same team and same investment process that won the 2012 Morningstar Fixed Income Fund Manager of the Year (USA) Award.
“We see many bottom-up investment opportunities in both the US and Euro credit markets, particularly in industries with pricing power and compelling growth prospects with high barriers to entry. Investors now have the ability to access PIMCO’s credit expertise and active management capabilities while still being able to make their own country and currency allocation decisions.” says Mark Kiesel, PIMCO CIO-Credit. “The short-dated segment of the Euro corporate bond market has a higher weight to the banking sector and we favour European banks” says Andreas Berndt, PIMCO European Credit Portfolio Manager, “They will be the main beneficiaries of the accommodative monetary policies such as the ECB targeted long-term refinancing operations.”
Adopting a low duration benchmark can improve the risk-return profile compared to that of a broader benchmark. As some investors are worried about the impact of potentially rising rates, they may seek solutions that will likely lower their overall exposure to interest rates (duration). The funds’ focus on short-dated corporate bonds provides investors with the opportunity to capture PIMCO’s consistent credit expertise but with less sensitivity to interest rate riskthan traditional credit strategies.
“We teamed up with PIMCO in 2011 to launch the first actively managed fixed income ETFs in Europe,” says Source Chief Development Officer Michael John Lytle. “Since then, we have amassed US$ 5.3 billion of assets in actively managed ETFs, proving that investors appreciate the advantage of combining PIMCO’s investment expertise with the efficiency and transparency provided by our ETF structure.”
The PIMCO Low Duration US Corporate Bond Source UCITS ETF and the PIMCO Low Duration Euro Corporate Bond Source UCITS ETF both have an annual management fee of 0.49%, but this is being reduced to 0.39% per annum by a one year fee waiver of 0.10%. The ETFs will trade on the London Stock Exchange and Xetra under the respective tickers of LDCU LN and LDCE GY.