PIMCO Drama Helped Create Vident ETF

December 09, 2014

A big money manager in Atlanta—and the Bill Gross soap opera in California—had everything to do with the creation of a bond ETF from Vident.

Ronald Blue & Co., the Atlanta-based registered investment advisor that manages $8 billion for its clients—many of them Christians, grew nervous early this year when PIMCO’s senior strategist Mohamed El-Erian left suddenly amid talk that he and star fund manager Bill Gross were feuding.

Folks at Ronald Blue, such as Chief Strategy Officer Vince Birley, reckoned it might be time to pull client assets out of the PIMCO Total Return Fund (PTTRX), a fund Gross managed ably in the past 25 years. They wanted to replace PTTRX with a rules-based bond fund that lined up better with Ronald Blue’s outcome-oriented and Christian values—and protect clients from any more human drama in PIMCO’s California paradise gone wrong.

So, Ronald Blue again teamed up again with Vident Financial, an upstart in the world of ETFs to ask Vident to create what would become the Vident Core U.S. Bond Strategy ETF (VBND). (It launched about three weeks after Gross’s astonishing Sept. 26 departure from PIMCO.) The new bond fund is what is referred to as a “bespoke” ETF—a security that has a ready audience at launch time. VBND is the third bespoke ETF Vident has created for Ronald Blue.

Together, the three funds—VBND, the Vident International Equity ETF (VIDI | D-54) and the Vident Core U.S. Equity ETF (VUSE | C-67)—have more than $1.2 billion in assets, making Vident’s arrival in the world of ETFs one of the splashiest in recent memory.

Birley visited recently on the phone with ETF.com Managing Editor Olly Ludwig to discuss his firm’s partnership with Vident. Birley made clear that the ideas behind Vident’s “enhanced beta” index funds are less about Christianity per se and more about investing for the long term. More precisely, that it’s about investing in countries and companies that are likely to thrive over time by dint of solid and ethical societal and corporate-governance structures.

ETF.com: You've got these three Vident ETFs you believe strongly in. Describe what you were thinking going into this.

Birley: I’ll start with the portfolios, because this gets to why we actually came up with the idea of creating bespoke ETFs. In our portfolio construction, we target return over a particular time period, and that requires us to look at current valuation levels. We do this at the country level, globally optimizing across 45 countries, and then we want to optimize within these countries and identify the right kinds of leadership and companies, and the right kinds of leadership in organizations that lend out money, bonds. We want to optimize all that so that we have the best chance of meeting our goals.

Achieving that was very hard to do with the tools that were out there. So instead of going out to 35 to 45 different country ETFs to be able to actually optimize where we wanted our equity allocation, we said: “Why don’t we just create our own ETF?”

Once we started thinking that, we thought: “OK, we could embed the rules.” Rather than being cap weighted, we could embed the rules with these principles to go find the best places to invest. And we wouldn’t have all the trading costs and all the tax drag that comes with trading 45 different ETF across the 14,000 accounts that we have.

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