PIMCO Drama Helped Create Vident ETF

December 09, 2014

ETF.com: Paint the big picture of where you're heading given what you already have in place.

Birley: We have a core-satellite approach to our portfolio construction, and the Vident solutions will reflect the core exposures we want in our portfolios. That leaves satellite solutions with our investment strategy group to be able to execute.

They’ll be more tactical, such as a particular overweight to maybe a region or a style box or something like that that these core solutions aren’t intended to cover.

ETF.com: Is that tactical piece also achieved with ETFs?

Birley: We do some, but we aren't limited to that. For example, we looked at the frontier markets and decided that an active mutual fund was better, and we went with Eaton Vance and helped work with them on the design.

ETF.com: Are you saying there are some clear parallels between what Eaton Vance did in an actively managed security and what you worked on with Vident?

Birley: Yes, they had the same principles, but with Eaton Vance, it’s an active fund focused on the frontier markets. We're not limited to ETFs. We love ETFs for a lot of reasons. But we're not going to say we're just simply an ETF shop.

ETF.com: From an AUM perspective, you manage $8 billion, and your $2 billion in 401(k)s isn’t in ETFs, which leaves $6 billion. And there’s now about $1.2 billion in the three Vident ETFs. So, what else is in ETFs, apart from what you have with Vident?

Birley: I’m guessing about another couple billion is in ETFs, so maybe 50 percent of that $6 billion of non-401(k) money is in ETFs, for about $3 billion in ETFs.

ETF.com: So indulge me—what is it that’s special about the ETF?

Birley: The first thing we really like about it this rules-based decision-making process. We’ve had a long period of time of watching discretionary managers try to choose securities to beat an index, and we’ve seen that process just not deliver the kinds of results it was supposed to.

We think that's going to decrease because we just don’t see how the efficiencies of the markets are something that a particular manager’s going to have an advantage of outside of maybe some emerging markets or frontier markets and things where there's not the transparency and the accessibility to information.

But that rules-based process is something that simply has a better chance of delivering consistent results that we can kind of know ahead of time to test.


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