Pimco gives investors a new multicurrency ETF designed to profit from a weakening dollar.
Pimco, the money management firm behind Bill Gross’ Pimco Total Return ETF (NYSEArca: BOND), today rolls out an actively managed nondollar currency ETF that will seek out any number of currencies—including those from emerging market countries—that the manager thinks have a good chance of outperforming the dollar over the long term.
The Pimco Foreign Currency Strategy Exchange-Traded Fund (NYSEArca: FORX) will invest in a combination of short-term fixed-income instruments, money market securities and currency forwards backed by high-quality, low-duration securities. It comes with an annual expense ratio of 0.65 percent, including a 0.11 percent fee waiver, according to regulatory paperwork detailing the ETF.
While the elongated angst-ridden period following the 2008 market collapse has tended to help the dollar in global investment markets, as the greenback has played a flight-to-safety role, many predict that the U.S. currency will resume its secular slide against a variety of currencies as the global economy slowly normalizes and the “Great Recession” fades into memory.
The new fund joins other multicurrency strategies already on the market, notably two ETFs from WisdomTree—the WisdomTree Commodity Currency Fund (NYSEArca: CCX) and the WisdomTree Emerging Currency Fund (NYSEArca: CEW). Crucially, however, because FORX is active, it can cast a much wider or narrower net than the two WisdomTree funds.
Pimco said it will select the fund's country and currency composition based on its evaluation of relative interest rates, inflation rates, exchange rates, monetary and fiscal policies, trade and current account balances, legal and political developments and other specific factors it believes to be relevant.
FORX will be able to invest in investment-grade securities as well as high-yield securities or, if unrated, of comparable quality as determined by Pimco. The duration of the securities will be anywhere between zero and three years, the Newport Beach, Calif.-based company said in a summary prospectus.
The ETF will normally invest at least 80 percent of its assets in the currency-related securities, and will typically limit its exposure to a single non-U.S. currency—from currency holdings or investments in securities denominated in that currency—to 20 percent of its total assets.
FORX will also be able to buy or sell securities on a when-issued, delayed delivery or forward commitment basis, and may engage in short sales.
Bill Gross’ BOND is the most successful actively managed ETF to date. Launched on March 1, 2012, it now has more than $4 billion in assets.