Pimco chases BlackRock in ETFs as money returns to bonds

Pimco is playing catch up to competitors in the growing market for ETFs

Mar 25, 2014 @ 11:14 am

+ Zoom
(Bloomberg News)

Pacific Investment Management Co., the envy of the bond world when it tripled assets following the financial crisis, is finding itself in an unusual role: Playing catch up to competitors in the growing market for exchange- traded funds.

As ETFs receive an increasing share of money going into bond funds, Pimco is adding strategies, with 19 new funds announced in January. Cushioned until a year ago by deposits into mutual funds such as Bill Gross's Pimco Total Return, the world's largest bond fund, the firm didn't enter the ETF market until 2009 and has stayed away from broad passive funds, which are dominated by established ETF providers such as BlackRock Inc.

The push allowed Pimco's 20 fixed-income ETFs to take in $1 billion in ETF deposits this year through March 21, according to data compiled by Bloomberg. BlackRock received $2.3 billion from clients, and Vanguard Group Inc. got $2.5 billion. Pimco trailed in part because it didn't offer some of the most popular targets for investors this year, such as short-term investment-grade company debt.

“Most investors are drawn to plain vanilla, super-low-cost fixed-income products,” said David Nadig, director of research at San Francisco–based ETF.com. “Pimco is not playing that game, and to me, it's a miracle they are getting any flows.”

BOND DEPOSITS

Bond ETFs gathered a net $10 billion this year through last week, according to data compiled by Bloomberg. Fixed-income mutual funds have recovered from redemptions last year to take in $14.9 billion in 2014 through March 12, according to the Investment Company institute.

The long-term trend shows ETFs, which typically track a basket of securities and trade throughout the day like stocks, grabbing a bigger proportion of bond fund deposits. Fixed-income ETFs took in a net $9.7 billion in 2013, even as bond mutual funds lost $83.4 billion to redemptions.

Catching a larger share of these deposits would help Pimco, based in Newport Beach, Calif., as it's fighting redemptions from the $236 billion Pimco Total Return Fund, amid underperformance in the past year and a shakeup of the firm's management.

Clients pulled $1.6 billion from the fund in February, leading the way as the company's mutual funds lost $2.49 billion to redemptions in the month, Morningstar Inc. estimated. Pimco was the only U.S. mutual-fund provider among the industry's top 10 with net withdrawals in the month, Morningstar's data show.

The Total Return Fund, run by Mr. Gross trailed 88% of similarly managed funds in the past 12 months, according to data compiled by Bloomberg.

That performance hurt the Pimco Total Return ETF, a variation of the mutual fund. It lost $159 million to withdrawals this year.

Pimco has pursued a strategy of offering either ETF versions of its active bond mutual funds, or narrowly focused passive funds, rather than broad index products. The firm in January asked the Securities and Exchange Commission for permission to open 19 actively managed ETFs. Those would include ETF versions of mutual funds such as Pimco Income, Pimco Unconstrained Bond and Pimco Municipal Bond, according to a regulatory filing.

DELIBERATE APPROACH

“We have applied a deliberate approach to the ETF market, focusing on active management and the unique value that Pimco can bring to ETFs through our investment process,” Natalie Zahradnik, an ETF strategist at the firm, said in an e-mailed statement.

Pimco is also making more from every dollar put into its bond ETFs than its rivals. The firm charges an average expense ratio on its ETFs of 0.36%, and 0.51% for its actively-managed products, according to data compiled by Bloomberg. BlackRock charges an average 0.26% and Vanguard 0.13%.

Eight of Pimco's existing ETFs are actively run. Funds that track an index account for more than 99% of U.S. ETF assets.

Pimco, which oversees about $1.9 trillion in total, is still only a fraction of the size of more established managers in ETFs. Its bond ETF lineup in the U.S. holds a combined $14.4 billion, according to data compiled by Bloomberg. BlackRock's iShares unit runs 66 fixed-income products in the U.S. holding $135 billion. Vanguard manages $52 billion in 15 U.S. bond ETFs.

“Pimco came in a bit late and they are considerably smaller,” Todd Rosenbluth, director of mutual-fund and ETF research at S&P Capital IQ in New York. “If they're shifting within fixed income, investors are more inclined to go with BlackRock or Vanguard.”

This year, ETFs that can protect investors from interest- rate jumps have proved popular. Short-maturity funds captured $4.5 billion, or 66 percent of all deposits to ETFs targeting a specific maturity band.

Pimco's $4.6 billion 0-5 Year High Yield Corporate Bond Index ETF is its only fund among the industry's top 10 fixed- income gatherers in 2014. BlackRock, the biggest ETF provider, has five of the top 10, led by its iShares 1-3 Year Credit Bond ETF.

Pimco could have done better with additional short-term funds, or from an earlier introduction of its Low Duration ETF, Mr. Rosenbluth said. That fund, which opened in January, has about $23 million in assets.

“Had it launched a year ago before rates moved higher, it's a product that would have been positioned to gather assets,” Mr. Rosenbluth said.

(Bloomberg News)

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Oct 17

Conference

Best Practices Workshop

For the fifth year, InvestmentNews will host the Best Practices Workshop & Awards, bringing together the industry’s top-performing and most influential firms in one room for a full-day. This exclusive workshop and awards program for the... Learn more

Featured video

Events

Tech tools of tomorrow: Innovations your firms can't live without in 2020

Gadget Girl hits the tech pavilion at Pershing INSITE to see what exciting new tools advisers can't afford to miss.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

Edward Jones is winning the Google search war

Brokerage firm's digital marketing investment helps land it at the top of local and overall search engine results, report finds.

Voya's win in 401(k) fee suit involving Financial Engines bodes well for other record keepers

Fidelity, Aon Hewitt and Xerox HR Solutions are currently defending against similar fiduciary-breach claims.

Collective investment trusts getting more attention from 401(k) advisers

The funds are catching on due largely to lower costs and more product availability, but come with some inherent drawbacks.

Vanguard rides robo-advice wave to $65B in assets

Personal Advisor Services, four times the size of its closest competitor, combines digital and human touch.

CFPs, including brokers, may have to adhere to a stricter fiduciary duty

CFP Board revises its standards and aims to beef up fiduciary requirements of certificants.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print