Pimco launches first actively managed covered-bond ETF

'A compelling alternative to broad European government bonds,' fund manager says

Jan 13, 2014 @ 1:22 pm (Updated 1:43 pm) EST

Pacific Investment Management Co. has joined with London-based exchange-traded-products provider Source UK Services to offer the first actively managed ETF focused on covered bonds.

Kristion Mierau, head of Pimco's European covered bond portfolio management team, runs the Pimco Covered Bond Source UCITS ETF, according to a statement on Source's website. The fund is traded on Deutsche Böse AG and has a first-year annual management fee of 0.38 percent to be paid monthly.

“In the current low interest-rate environment, covered bonds offer attractive risk-adjusted yields and are potentially a compelling alternative to broad European government bonds, as the asset class has historically provided higher returns with lower volatility and lower sensitivity to changes in market yield levels,” Mierau said in the statement.

Covered bonds, which were pioneered in 18th-century Prussia, are backed by mortgages and public sector loans. The debt returned 3.7 percent in 2013 compared with 2.3 percent for European sovereign debt, according to Bank of America Merrill Lynch index data.

(Bloomberg News)