Pacific Investment Management Company, better known as Pimco, made headlines this week with the launch of its first exchange-traded fund – the Pimco 1-3 Year U.S. Treasury Index Fund (TUZ). TUZ tracks the Merrill Lynch short-term U.S. Treasury index and immediately becomes the cheapest fixed income ETF on the market with a paltry 0.09% expense ratio. Pimco’s entrance into the ETF space represents a potentially game-changing moment for the ETF industry. With investor assets continuing to flow out of mutual funds and into ETFs, Pimco joining the party further pushes ETFs into the mainstream and increases the growing pressure on other high profile mutual fund companies to develop or increase their suite of ETF products.
Pimco, the standard for fixed-income mutual funds, manages over $750 billion in assets with one of the strongest track records in the world. With its foray into ETFs, Pimco is signaling a shift in the mindset of large mutual fund companies who have been slow to embrace the rapidly growing ETF industry. With their low cost, transparency, tax efficiency, among other benefits, ETFs have been cutting into the highly profitable mutual fund model. As we recently explained with Fidelity, the mutual fund giants are facing considerable pressure to move quickly into ETFs as the mutual fund model continues to look less attractive.
Pimco’s foresight to adapt to the quickly changing investment landscape might be the necessary catalyst to push the other large mutual fund companies to develop viable ETF strategies or face getting left behind. Pimco’s 1-3 Year U.S. Treasury ETF represents just the beginning for the company, as they also announced SEC filings for six additional ETFs: Pimco 3-7 Year U.S. Treasury Index Fund, Pimco 7-15 Year U.S. Treasury Index Fund, Pimco 15+ Year U.S. Treasury Index Fund, Pimco Broad U.S. TIPS Index Fund, Pimco Short Maturity U.S. TIPS Index Fund, and the Pimco Long Maturity U.S. TIPS Index Fund. It appears that the party is just getting started.
