PIMCO introduced two new ETFs on September 21, 2010: PIMCO Build America Bond Strategy Fund (BABZ), the first actively-managed BABs ETF, and PIMCO Investment Grade Corporate Bond Index Fund (CORP). The new listings boost PIMCO’s ETF offerings to twelve, consisting of four actively-managed and eight indexed funds.
PIMCO Build America Bond Strategy Fund (BABZ) is an actively-managed ETF targeting taxable municipal bonds issued as part of the Build America Bonds (BABs) program. It will attempt to capture attractive yield opportunities in this segment while avoiding securities from municipalities that PIMCO believes face deteriorating credit quality. The fund is managed by John Cummings, executive vice president and head of PIMCO’s municipal bond desk.
The expense ratio is capped at 0.45%. The BABZ snapshot page currently does not have much data but will eventually provide information on maturity, duration, yield, and holdings. Additional information can be found in the BABZ fact sheet (pdf) and PIMCO’s BABs ETF Strategy (pdf) document.
BABZ will compete with PowerShares Build America Bonds (BAB) and SPDR Nuveen Barclays Build America Bond (BABS), both of which are index based funds with 0.35% expense ratios.
PIMCO Investment Grade Corporate Bond Index Fund (CORP) is technically classified as an index ETF that seeks to track an index of investment grade U.S. corporate debt issues. However, PIMCO’s proprietary optimization process will try to avoid securities the firm believes may be hard to trade or deemed to have the highest risk of credit loss.
The underlying BofA Merrill Lynch US Corporate Index has an average maturity of 10.2 years, a modified duration of 6.5, and consists of 4,204 issues. Current monthly yield is approximately 5.4%, making the expected distribution yield on CORP to be about 5.2% after subtracting out the 0.20% capped expense ratio. Additional information can be found on the CORP snapshot page and the CORP fact sheet (pdf).
CORP will face competition from 15 existing investment grade corporate ETFs, most notably from iShares iBoxx $ Investment Grade Corporate Bond (LQD), Vanguard Intermediate-Term Corporate Bond ETF (VCIT), and Vanguard Long-Term Corporate Bond ETF (VCLT).
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.