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PIMCO Steps Into the ETF Fee War

In a rare occurrence, PIMCO cut the expense ratio on one of its actively managed exchange traded funds, revealing the stiff competition in the ETF space, even for an established fixed-income giant.

In a regulatory filing last week, the money manager raised the fee waiver for its PIMCO Low Duration Exchange-Traded Fund (LDUR) to 8 basis points from 2, essentially reducing total expenses to 0.49% from 0.55%, reports Emile Hallez for Ignites. LDUR original expense ratio sits at 0.57% but currently implements a fee waiver through October 31, 2015.

Todd Westby, chief executive of T Hayes Consulting, argues that the change is substantial for a fixed-income fund. He also points out that other large ETF providers that cut fees have also attracted greater net inflows.

“You don’t do that kind of thing if you don’t want to draw some attention,” Westby said in the article. “When you look at what Schwab and Vanguard have done with their pricing, they’ve been very aggressive, and in their core products it’s been very successful.” [Vanguard Brings ETF Fee-Cutting to Europe]

Looking at ETF asset flows, PIMCO ETFs experienced a net $110 million in net outflows over August. In comparison, BlackRock’s iShares attracted over $10.7 billion in net inflows and Vanguard brought in $5.2 billion. [BlackRock Takes Low Fee Approach in Europe]

LDUR’s new 0.49% expense ratio makes its costs on par with the PIMCO Low Duration Institutional Fund (PTLDX), which has a 0.46% expense ratio. In comparison, the Low Duration A-Shares class (PTLAX) has a 0.8% expense ratio.

The Low Duration funds track a diversified portfolio of high-quality bonds with a focus on limiting interest rate exposure while maximizing returns. The fund tracks short-term, high-quality bonds.

The Low Duration ETF began trading on January 22, 2014. Since inception, LDUR has gained 1.9% while PTLAX has also remained relatively flat. LDUR comes with a 1.1% 30-day SEC yield and PTLAX shows a 1.09% 30-day SEC yield.

PIMCO is shaking up its ETF lineup, closing down four ETFs while planning to add three more. The PIMCO Australia Bond Index ETF (AUD) , PIMCO Canada Bond Index ETF (CAD) , PIMCO Germany Bond Index ETF (BUND) and the PIMCO Build America Bond ETF (BABZ) are the PIMCO funds slated for closure on Oct. 1. [PIMCO to Shutter Four ETFs, Add Three New Funds]

For more information on the ETF industry, visit our current affairs category.

CORRECTION: LDUR performance