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PIMCO Bolsters ETF Lineup With Smart Beta Funds

September 7, 2017 8:31 am
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PIMCO Bolsters ETF Lineup With Smart Beta Funds

PIMCO, one of the world's largest managers of fixed income assets, added to its lineup of exchange-traded funds Wednesday with the debuts of three equity-based smart beta funds, marking the first equity funds to join PIMCO's ETF stable.

Each of three new PIMCO ETFs follow indexes from Research Affiliates that are based on five equity factors — value, quality, low volatility, momentum and size.

“PIMCO RAFI Dynamic Multi-Factor ETFs seek to deemphasize the factors that are expensive compared to historical norms while emphasizing those that are undervalued, thereby introducing a buy-low, sell-high discipline in the factor investing world,” according to a statement issued by California-based PIMCO. “Moreover, the PIMCO RAFI ETFs incorporate fundamental indexing, which weights stocks by economic size, rather than by market capitalization, which can skew weightings toward stocks already trading at high valuations.” 

Examining The New ETFs

The PIMCO RAFI Dynamic Multi-Factor Emerging Markets Equity ETF (NYSE:MFEM) follows the RAFI Dynamic Multi-Factor Emerging Markets Index. That index provides a dynamic approach to investment factors, including value, quality, low volatility and momentum.

MFEM features exposure to 16 emerging markets, but South Korea, Taiwan and China combine for over half the ETF's weight. Brazil, Latin America's largest economy, is the only country with a double-digit weight in the new ETF. The new ETF holds almost 540 stocks and has a forward price-to-earnings ratio of less than 11, implying a discount to the MSCI Emerging Markets Index.

The PIMCO RAFI Dynamic Multi-Factor International Equity ETF (NYSE:MFDX) is an ex-U.S. developed markets fund that tracks the RAFI Dynamic Multi-Factor Developed Ex-U.S. Index. That benchmark also uses a dynamic approach to multiple investment factors.

MFDX, which holds nearly 1,100 stocks, can be used as an alternative to MSCI EAFE strategies. The new ETF devotes over 39 percent of its combined weight to Japan and the U.K. Germany, Switzerland and Canada combine for over 21 percent of the fund's weight. MFDX charges 0.39 percent per year, or $39 on a $10,000 investment.

A U.S. Play

The PIMCO RAFI Dynamic Multi-Factor U.S. Equity ETF (NYSE:MFUS) is the US-focused fund among the new PIMCO ETFs. MFUS follows the RAFI Dynamic Multi-Factor U.S. Index, which uses a similar dynamic, multi-factor approach to those seen in the aforementioned funds.

Top 10 holdings in MFUS include Apple Inc. (NASDAQ:AAPL), International Business Machines Corp. (NYSE:IBM) and Microsoft Corporation (NASDAQ:MSFT). The new ETF holds nearly 1,000 stocks and charges 0.29 percent per year,

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