Grail to go head-to-head with Pimco with short-term fixed-income ETF

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 who are looking for higher returns than those available from money market funds, and the fund will have some limited volatility, said Grail chief executive William M. Thomas.

“We definitely think there is a marketplace for this given the returns in money funds,” he said.

The firm notified the Securities and Exchange Commission last week 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 makes 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 area, said Scott Burns, an ETF analyst at Morningstar Inc.

Pimco launched the Enhanced Short Maturity Strategy Fund (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,” he said.

Although Pimco’s short-term-bond actively managed ETFs have done well in the past, it remains to be seen whether Grail can compete, Mr. Burns said.

“Pimco did well because it was a well-known brand in the space,” he said.

For its part, Pimco welcomes the competition, said Don Suskind, senior vice president and head of the ETF product management team at the company. 

“A lot of analysts like to categorize products, but when you have a product without any competition, there is no basis for comparison,” he said. “As more similar products are introduced it can validate the product.”

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

E-mail Jessica Toonkel Marquez at [email protected].