AUM: £12 billion+
ALL ETFs? No
When did you start using the PIMCO Short-Term High Yield Corporate Bond ETF?
We initiated a position in the PIMCO Short-Term High Yield Corporate Bond ETF during August 2013.
Why did you choose the PIMCO Bond ETF?
At a portfolio level we have been rotating out of interest rate sensitive bonds, such as sovereign bonds and index-linked bonds that have a high duration. We have been rotating the proceeds into credit sensitive bonds with a lower duration, particularly high yield. We also have a preference for short duration investments within the credit sphere. This current allocation stance opened up an opportunity to invest in the PIMCO Short-Term High Yield Corporate Bond ETF.
What are the attractions of the PIMCO Bond ETF?
This ETF has a distribution yield of 4.91 percent with an effective duration of 1.94yrs. The ETF focuses on high yield credit with a short maturity date, which is in line with our current views. We also take comfort in the economies of scale that PIMCO possesses, as well as its competency in the fixed income sector.
How do you use the PIMCO Bond ETF?
We use the ETF in the Architas Monthly High Income Fund, which aims to generate high levels of income in a comparison to short-term UK interest rates. The ETF distributes income on a monthly basis. This, combined with the attractive yield, makes the ETF an extremely good fit for that particular portfolio. The Architas Monthly High Income Fund invests in other funds, debt instruments (money market instruments), warrants, derivatives and deposits. It also employs hedging strategies.
What position do you have on the PIMCO Bond ETF?
We hold a position size of 5 percent in the Architas Monthly High Income Fund.
Do you find that the PIMCO Bond ETF is weighted too heavily in any particular area?
There are over 362 holdings in the PIMCO Short-Term High Yield Corporate Bond ETF, making it extremely diverse. However, you are investing in a particular segment of the fixed income market and you need to be mindful of this, especially when you consider the correlation between high yield and equity. Again, this emphasises the benefit of having an investment in this product as part of a wider portfolio.
How do you compare this ETF to others?
There are very few ETFs in the market place that offer an exposure to short duration high yield. iShares launched such an ETF in October 2013. However, for this short duration high yield ETF to distribute a monthly income makes it extremely favourable.
Is it used as a replacement for anything else? What else could you use if not an ETF to get this kind of exposure?
There are many ways to access this investment and there are a plethora of active funds on offer with some providing a short duration option. However, as yields continue to compress and returns are likely to mirror yield you might question the opportunity cost of holding an active fund over a more commercially priced ETF. At present we are comfortable holding both.