PIMCO Drama Helped Create Vident ETF

December 09, 2014

ETF.com: It sounds like you're serving up the Ronald Blue & Co. version of the ETF.com ethos, which is concentrate firstly on beta, but not to the exclusion of alpha opportunities.

Birley: Certainly not to the exclusion of it. In fact, we would say if you have a talent for that, you would be wise to use it. But you also have to think about trying to also preserve and manage your wealth. So the best thing is to put a plan together that has all that wealth management assets set aside so that whatever’s above can be used for more aspirational growth such as buying some stock or buying into private equity or starting a business on your own.

ETF.com: We hosted a webinar here on ETF.com with Vident’s CEO Nick Stonestreet, and he was saying that the falling out at PIMCO early this year between Mohamed El-Erian and Bill Gross made you rethink having clients in the PIMCO Total Return Fund (PTTRX) and that it jump-started the discussions that led to the Vident aggregate bond fund, VBND. Is all that right?

Birley: Yes. The PIMCO Total Return was our core holding, and was going to be our long-term holding. When Mohamed left, I started thinking about whether this really was where we should have a long-term allocation. I told Nick: “We may want to really think next about putting a core bond fund in place. I'm not sure about where the PIMCO trajectory is going.” I didn't have any idea Bill was going to leave.

ETF.com: I don't think anyone did, really. What was the nature of your concern about needing that new core holding?

Birley: Well, it was a concern, 1) that the core holding we had in intermediate term now really didn't have any principles embedded into it, and with PIMCO’s instability, we thought this should be the next ETF on the list for Vident to build for us.

Now, as it turned out, it may have looked like we had foresight into that because a few weeks after the resignation, we launched VBND.

But we made a decision to get out of the PIMCO Total Return fund the day Bill announced he was leaving, and we moved all of our assets out of the fund. I’ve been on the back end of a gated mutual fund that you can’t get out of—this is the other reason I like ETFs, because you can’t be gated.

ETF.com: Yes, that's crucial. So you're literally saying you heard that news on September 26 and you pulled the plug right then?

Birley: We were out that day.

ETF.com: Any further plans with Vident, such as, an international bond ETF?

Birley: Right now what we're focused on is these three ETFs. I think 2015 we’ll be more focused on making sure we got the quality assurance, our communications around that. But I think there's definitely a future for more Vident ETFs.

But we don’t pursue Vident to necessarily say we want all of our money to be in Vident ETFs. What we’re saying is, where we do see the opportunity for us to be able to apply principles in a portion of our portfolio, that there's a more effective and efficient way of getting this done with the Vident tool.




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