Grail to go head-to-head with Pimco with short-term bond ETF

Firm teams with Western Asset Management to launch actively managed fixed-income fund

May 17, 2010 @ 4:08 pm

By Jessica Toonkel Marquez

Grail Advisors LLC has partnered with Western Asset Management Co. to launch an actively managed short-term fixed income exchange-traded fund. The move puts the two companies in direct competition with fixed-income giant Pacific Investment Management Co. LLC.

The Grail Western Asset Enhanced Liquidity ETF will target investors looking for higher returns than money market funds, and will have some limited volatility, William M. Thomas, chief executive of Grail, said in an interview. “We definitely think there is a marketplace for this given the returns in money funds,” Mr. Thomas said.

The firm notified the Securities and Exchange Commission today about its plan to launch the ETF. Grail expects to launch the fund this summer.

The total operating expenses of the fund will be 30 basis points.

It make sense for Grail and Western Asset Management to launch a short-term bond actively managed ETF, given the success that Pimco has had in the space, said Scott Burns, an ETF analyst at Morningstar Inc. Pimco launched the Enhanced Short Maturity Strategy Fund Ticker:(MINT), its first actively managed ETF, in November. The fund already has $178 million in assets, and is trading about $3 million a day, Mr. Burns said. “These kinds of funds are money market substitutes and they are really popular with hedge funds and other money managers that need to equitize cash quickly,” Mr. Burns said.

While short-term bond actively managed ETFs have done well in the past, it remains to be seen if Grail can compete with Pimco, Mr. Burns said. “Pimco did well because it was a well known brand in the space,” he said.

The short-term fixed-income fund will be Grail's eighth actively managed ETF.

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