Fixed-income giant PIMCO launched its third actively-managed ETF on Wednesday (2/3/2010) of this week. PIMCO Short Term Municipal Bond Strategy Fund (SMMU) targets the short end of the tax-free muni bond space. Maturity of the fund’s holdings will be in the one-year to three-year range.

Intentionally or not, the SMMU introduction is well timed. Talk in Washington of increasing tax rates has many high-net-worth investors looking for tax-free places to park their assets. Meanwhile, stock market performance is anything but impressive so far in 2010. SMMU will compete with three other ETFs in its niche: iShares S&P Short-Term National Muni Bond (SUB), SPDR Barclays Short Term Municipal Bond (SHM), and Market Vectors Short Municipal (SMB).

SMMU differs from the others in being actively-managed. The portfolio will be run by veteran bond manager John Cummings. Whether his skill will translate into better investment results is unknown as yet, of course, but it may not matter. The PIMCO brand name carries a lot of weight, and their previous ETF offerings have been generally successful in attracting assets.

The new ETF has a gross expense ratio of 0.55%, currently capped by the sponsor at 0.35%. Sister fund PIMCO Intermediate Municipal Bond Strategy Fund (MUNI) has the same fee cap and came to market in December 2009. Net assets for MUNI are around $13 million as of this writing. We suspect that its lower risk profile will allow SMMU to grow to that size very soon and probably even larger.