+ 2.45
+ 0.77%
+ 4.04
+ 1.2%
+ 4.46
+ 1.1%
+ 0.21
+ 0.15%
+ 0.70
+ 0.41%

An Active ETF With An All-Star Pedigree

February 1, 2016 8:37 am
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Actively managed exchange-traded funds, on a combined basis, remain just a sliver of the overall U.S. ETF industry. As of mid-January, actively managed ETFs trading in the U.S. had just over $23 billion in assets under management, peanuts relative to the well over $2 trillion in combined U.S. ETF assets under management.

PIMCO, one of the world's largest managers of fixed income assets, accounted for $7.35 billion of those $22.9 billion in active ETF assets as of January 15, according to AdvisorShares data. The PIMCO Enhanced Short Mat Str Fund ETF (NYSE: MINT) is a big reason why the California-based money manager is one of the dominant issuers of active ETFs, as MINT is home to $4.47 billion in assets under management.

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Although the Federal Reserve's pace of interest rate increases, which started in December, is expected to be gradual, short duration bond ETFs have been favored destinations for bond investors. MINT certainly fits that bill with an effective duration of about a third of a year, according to PIMCO data.

Another Appeal

Lead manager Jerome Schneider, who was recently named as the 2015 Morningstar Fixed-Income Fund Manager of the Year, is another reason why investors love MINT.

“MINT has a great deal of flexibility when compared with money market funds. Its prospectus language is vague in that the fund primarily holds exposure to investment-grade bonds, but in practice, it doesn't hold any junk bonds. It holds no non-U.S. developed-markets issues, and as of October 2015, it held less than 5% in emerging-markets debt. It will typically keep its duration under one year and its weighted average maturity under three years,” according to a recent Morningstar note.

Investors can gain access to Schneider's stewardship via MINT for a reasonable 0.36 percent per year, or $36 for every $10,000 invested.

Finding A Haven In U.S. Government Bonds

As global equity markets have seen increased turbulence to start 2016, investors have been running to safe-haven destinations. That includes exchange-traded funds holding U.S. government bonds. Professional investors are expected to boost their usage of fixed-income ETFs with nearly two-thirds already owning bond ETFs, according to a recent Greenwich Associates study.

“The closest analogue to MINT is mutual fund PIMCO Short-Term. On average, the latter fund has produced about 46 basis points of annualized outperformance versus MINT over the trailing five years through December 2015, despite a higher expense ratio of 0.45 percent. That fund doesn't typically take on much more interest-rate risk than MINT but has maintained greater exposure to credit-sensitive sectors, including corporate high-yield, non-U.S. developed-markets, and emerging-markets bonds. That higher risk profile has generated and should continue to generate higher returns over the long term, but also at a slightly higher cost,” according to Morningstar.

MINT is home to nearly 540 holdings.

Image Credit: Public Domain

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