Inclusion in new Pimco funds is a coup for Vanguard
Bond giant's latest target date funds invest heavily in the low-cost firm's ETFs.
Investors who put a dollar into Pimco’s newest set of mutual funds will find as many as 85 cents managed by the Vanguard Group Inc.
Pacific Investment Management Co. has launched a new target date fund offering with an equity portion held in Vanguard exchange-traded funds.
The fund series, RealPath Blend, is a cousin of Pimco’s traditional target date offering.
But the funds contain not only Pimco’s its flagship Total Return Fund (PTTAX), famous for its ex-manager Bill Gross, it also holds Vanguard’s popular index-tracking funds.
For an investor planning to retire around 2055, the RealPath Blend includes an 84.5% allocation to Vanguard’s large-cap U.S., developed markets, emerging markets, real estate investment trust and small-cap index funds. Investors closer to retirement have higher exposure to Pimco bond funds.
The launch takes place as retirement plans have faced increasing pressure to lower costs for investors, in part due to regulation and lawsuits. That’s boosted ETFs, which have struggled to enter retirement plans on their own merits.
The JPMorgan SmartRetirement Blend series, started in 2012, includes Vanguard ETFs as well as funds from BlackRock Inc.’s iShares and State Street Corp.’s SPDRs. Principal Financial Services Inc. followed with its partly passive LifeTime Hybrid Funds.
ATTENTION TO FEES
“The attention to fees has resulted in the managers to also launch lower-cost versions, and one way to lower the cost has been adding in more passive management,” said Jeff Holt, an analyst at Morningstar Inc. “A distant secondary consideration is the belief of whether certain markets are efficient or not.”
Pimco spokeswoman Agnes Crane said executives weren’t available for an interview. In an emailed statement, Rick Fulford, Pimco’s head of U.S. retirement, said large retirement plans “have long customized their target date funds to combine active and passive management” and that Pimco is expanding the “cost-effective” combination to plans of all sizes.
Vanguard, the world’s largest mutual fund manager, superseded Pimco as the top manager of U.S. fixed-income assets in 2013.
In an email, a Vanguard spokesman David Hoffman said investors have been turning to the firm’s funds “for their low costs, broad diversification and precise tracking.”
“This is a continuation of that trend,” he said.
Target date funds exploded in popularity after a 2006 U.S. law allowed plan sponsors to automatically funnel employee contributions to retirement accounts into the funds of funds. They manage $702 billion.
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