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PIMCO, Source Start Collaboration

Written by Staff

January 26, 2011 15:31 (CET)

PIMCO and Source have launched the first two fixed income exchange-traded funds under the joint venture agreement they announced in December.

The two new funds include a European variant of the actively managed ETF structure pioneered by PIMCO in the US market.

The PIMCO euro enhanced short maturity Source ETF and PIMCO European advantage government bond index Source ETF have been listed on the German stock exchange with annual total expense ratios of 0.35% and 0.3%, respectively.  The funds have not yet been registered for sale in other European markets, meaning that information on the ETFs is so far only available to readers of Source’s German-language website.

The PIMCO euro enhanced short maturity Source fund is unusual for an ETF in that it seeks to outperform, rather than merely tracking its benchmark, the European overnight interest rate, EONIA.  It does this by taking both credit and duration risk: according to the Source website, the ETF has nearly 70% of its assets in corporate bonds, while also investing almost half its funds in fixed income instruments of over one year’s maturity (including some exposure to long-dated bonds of 20 years’ maturity or more).

The fund will be managed by Andrew Bosomworth and Vineer Bhansali of PIMCO.

The PIMCO European advantage government bond index Source ETF is a more traditional index-tracking ETF, although it departs from most bond ETFs listed in Europe by choosing to follow a GDP-weighted, rather than capitalisation-weighted benchmark.   PIMCO has been a vocal proponent of alternative weighting methodologies in fixed income index construction (see ‘Time To Rethink Bond Indexes’, authored by PIMCO’s Ramin Toloui and published on this site in September).

By contrast with the majority of Source’s existing ETF range, which uses swap-based (synthetic) replication for index-tracking, the two new fixed income funds use physical replication, owning the index securities directly.

Brown Brothers Harriman, which acts as the global custodian for many of PIMCO’s funds, will assume this responsibility for the new ETFs as well.

Several other fund launches from the PIMCO/Source joint venture are in the pipeline, said MJ Lytle, director of marketing at Source.




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