Out Of BOND, But Into Pimco ETFs In July


Bill Gross’ Pimco Total Return ETF (BOND) lost assets in July, but firmwide, Pimco gained assets last month—an example of how investors aren’t bailing wholesale out of fixed income; rather, they’re shortening duration amid concern the post-crash era of easy-money policies may soon start to end.

BOND, the most successful U.S.-listed active ETF to date and the second-most-successful ETF launch in the ETF industry’s 20-year history, began to face head winds this spring in terms of both returns and investment flows. Those head winds continued in July when Pimco’s flagship ETF strategy suffered outflows of $147 million, according to data compiled by IndexUniverse.

Investors were spooked by Federal Reserve Chairman Ben Bernanke’s “tapering” comments on May 22 that the central bank could start to scale back quantitative easing this year amid signs of steadily strengthening U.S. growth.

Bonds sold off big-time in June, with the 10-year Treasury note jumping more than 100 basis points to more than 2.5 percent. Also, outflows from ETFs set a record of about $12 billion in June , with much of that coming out of bond funds.

For its part, BOND bled more than $550 million in June and, again, suffered redemptions of $147 million in July.

But looking beyond BOND’s outflows last month reveals that Pimco ETFs, in the aggregate, pulled in $831 million.

Loyalty To Pimco's Brand?

What that suggests is that Pimco may be on the cutting edge of creating brand loyalty—a so-far elusive concept in the two-decades-old ETF industry.

“Brand loyalty is something I think about a lot with ETFs generally,” said Nicholas Colas, the chief market strategist with ConvergEx Group, the trading and technology firm.

“How do you build a brand around products or the firm in such a way that when clients move assets around you can hold onto the assets,” he said, arguing that the out-of-BOND-but-still-in-Pimco asset flows suggests the firm may be making some progress toward achieving precious brand loyalty, though it was still too early to say for sure that that is what’s going one at Newport Beach, Calif.-based Pimco.

Regarding the intra-Pimco asset flows, it appears that a good part of those asset movements were into short-duration strategies.

Specifically, the Pimco Enhanced Short Maturity Strategy Fund (MINT)—a money-market proxy—pulled in $262 million last month.

Shortening Duration

It’s pretty much impossible to ascertain that at least some of the money coming out of BOND last month went into MINT, but it’s a good bet that some of it did.

It’s also clear that MINT may well be the perfect place for relatively conservative Pimco clients who want to both preserve capital and remain Pimco clients might want to make use of MINT—the second-most-successful active ETF after BOND itself.

MINT is currently a nearly $4 billion fund, while BOND had $4.21 billion, according to data compiled by IndexUniverse.

What’s also a good bet is that some bond investors shortening duration last month may have moved assets to the Pimco 0-5 Year High Yield Corporate Bond Fund (HYS). The short-dated junk fund pulled in $528 million and ended the month of July a $2.83 billion ETF.

Whatever flowed out of BOND and into either MINT or HYS, the two short-dated bond funds together pulled in about $790 million, which amounts to the lion’s share of the $831 million in Pimco’s net inflows.

Pulling back to take in Pimco’s July asset flows, it’s clear that what analysts have been saying about investors shortening duration as the Fed gets ready to end quantitative easing is in evidence at Pimco, which, net-net, is benefiting from the intensifying focus on the short end of the yield curve.


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