Rising rates, volatility in fixed income markets, plus Gross' big success, drive efforts.
With interest rates rising and volatility increasing in fixed-income markets, exchange-traded-fund sponsors are looking to launch actively managed funds for bond investors.
A survey conducted by Cerulli Associates Inc. in the first quarter found that 57% of sponsors surveyed intended to introduce actively managed fixed income ETFs this year. “Investors and financial advisers want strategies beyond the typical intermediate-term bond fund,” said Alec Papazian, an associate director at Cerulli. “In a period of rising interest rates, they see value in active management.”
The success of Pimco’s Total Return ETF — which mirrors the manager’s mutual fund of the same name, likely has sparked much of the interest, Mr. Papazian said.
Since launching the Total Return ETF in February 2012, Pacific Investment Management Co. LLC has attracted nearly $5 billion from investors. That’s a tiny sum compared with the more than $290 billion in the firm’s Total Return mutual fund, but it’s a huge success, nonetheless. Pimco has plans to introduce another three actively managed ETFs in the near future — Pimco Diversified Income, Pimco Real Return and Pimco Low Duration. All three funds will mirror other fixed-income mutual funds at the firm.
Other sponsors are betting that investors want active management in fixed-income funds as well. First Trust Portfolios LP, for example, launched a high-yield long/short ETF in February that has taken in about $25 million so far, according to Mr. Papazian. Columbia Management Investment Advisers LLC has filed to launch 17 new actively managed ETFs across both fixed income and equity market segments. New fund offerings are expected in the municipal and taxable-bond- market segments.
With total assets in actively managed ETFs at just over $10 billion at the end of last year, compared with $1.3 trillion in passive funds, the products could be a significant source of growth for the industry going forward. Sponsors, however, aren’t likely to have the kind of immediate success that Pimco did with the Total Return ETF, Mr. Papazian said.
“Pimco comes with a strong brand name and star fund managers. A lot of firms don’t have that,” he said. “I’m interested to see how the Columbia product launches go. I think that will be more of a model for other firms than the Pimco experience.”
