Rolle im Portfolio
The PIMCO USD Short Maturity Source UCITS ETF is an actively managed ETF aiming to deliver returns above the US 3-month money market rate, as measured by the Citigroup 3-month US T-Bill index. The ETF manager sets out to do this by investing in investment-grade USD-denominated bonds with very short maturity (i.e. mostly up to one year). The ETF distributes dividends on a monthly basis. This is a USD-denominated ETF, which may have foreign exchange implications for European investors.
This ETF will primarily appeal to investors seeking a boost in returns over a standard passively-managed US money market ETF while limiting risk in the process. However, being an actively-managed fund, investors should not overlook that a) the ETF’s performance will be determined by the investment choices made by the portfolio manager and, b) the management charge will be comparatively much higher than that levied by purely passive instruments.
Money market ETFs – or close alternatives such as this ETF - can be deployed as a core holding in an investment portfolio as a substitute for outright cash positions. This may help to neutralise the so-called “cash drag” (e.g. the diminishing effect on overall returns of holding rather than investing cash). Investors using this ETF for cash management purposes will have to carefully consider whether the potential returns (net of fees) on offer are financially attractive relative to cheaper passive alternatives and remunerated cash deposits.
Although this ETF is essentially a cash management tool, some investors may see a tactical duration-management use to it. The ETF’s ultra-short maturity bias could indeed allow for duration-shortening plays at times of rising interest rates. We would point out though that such use would be mostly suited for European investors with a significant US fixed income exposure and the ability to comprehensively monitor economic developments and their implications for US monetary policy.
Fundamentale Analyse
The US economic recovery has gathered speed over the past year, rebounding strongly in Q2 2014 from the adverse weather-driven blip in Q1 2014. Domestic private consumption and business investment have improved and the housing market has strengthened. Labour market conditions have also shown consistent positive signs, with the jobless rate closing in to 6.0% in Q3 2014, down from a peak of 10% at the height of the crisis in 2010.
The absence of domestic wage-led pressures and the fall in raw material and domestic energy prices are keeping current inflation broadly in check, while long-term inflation expectations remain well anchored.
Against this backdrop, the US Federal Reserve (Fed) continues to retain a very accommodative conventional monetary policy stance. However, on account of the improving macroeconomic outlook, the Fed announced in December 2013 a progressive decrease in the level of monthly asset purchases. At every Fed meeting since, the Fed has approved a combined USD 10bn decrease, meaning that QE would be entirely phased out by end 2014.
Fed Funds have been held in a 0.00-0.25% target range since December 2008 and, despite mounting expectations for policy normalisation into 2015, are likely to remain at very low levels for a protracted period. Even accounting for the necessary pricing in of higher interest rates, short-term yields (e.g. 3m T-bills), which tend to replicate movements in the Fed Funds rate, should also be expected to remain at very low levels for the foreseeable future.
Against this backdrop, one would expect an actively-managed fund to easily deliver returns over a benchmark linked to 3m T-bill yields without unduly taking too much risk.
Indexkonstruktion
The benchmark of reference for the ETF manager is the Citigroup 3-Month US Treasury bill index. The index measures returns equivalents to the yield average of the last three 3-month US Treasury bill month-end rates. Returns for this index are calculated on a monthly basis. The calculation process is as follows: a) compute the discount yields for the three previous month-end dates; b) convert the discount rates to bond-equivalent yields; c) calculate the simple average of the bond-equivalent yields and, d) de-compound to a monthly frequency using the actual number of days in the month and a 365-day year convention.
Fondskonstruktion
The PIMCO USD Short Maturity Source UCITS ETF was launched in February 2011 and is domiciled in Ireland. The ETF is denominated in USD and distributes dividends on a monthly basis. The ETF is actively managed by PIMCO Global Advisors Limited. As of this writing, the ETF’s portfolio manager is Jerome Schneider. Mr Schneider is an executive VP in PIMCO’s Newport Beach office and head of the short-term and funding desk. He has over 15 years of investment experience. The ETF invests primarily in a mix of investment-grade USD-denominated government and corporate bonds with short maturity (e.g. up to three years, but mostly up to one). However, at the fund manager’s discretion the ETF may also invest in instruments such as emerging market, mortgage-backed or municipal debt, provided they are USD-denominated and investment-grade rated. The average portfolio duration of the ETF will vary in relation to the portfolio composition chosen by the fund manager at any given time. However, the objective is to keep it below one year. PIMCO Source discloses the daily composition of the ETF portfolio, including a breakdown by asset type, maturity, country exposure and credit rating, on its website. A snapshot as of this writing (early September 2014) showed the portfolio was made up of 530 bonds, with individual statistical weights ranging from 0.01% to 2.2%. The distribution by asset type was 58% investment-grade corporate, 19% government, 11% mortgage-backed, 4% emerging market and 1% municipal. The remaining 7% was in cash. We understand that PIMCO Source ETFs do not engage in securities lending.
Gebühren
The total annual expense ratio (TER) for this actively-managed ETF is 0.35%. This compares to a 0.10-0.20% for pure passive ETFs providing exposure to the US money market or the short-dated segment of the USD-denominated bond market. Additional costs potentially borne by investors and not included in the TER include bid/offer spreads and brokerage fees when buy/sell orders are placed for ETF shares.
Alternativen
As of this writing, there is no like-for-like alternative to this actively-managed PIMCO Source ETF in the European ETF marketplace. European investors looking for ETFs for USD cash management purposes, but unwilling to go down the actively-managed route, can choose from a number of ETFs either tracking money market or very short-dated fixed income indices.
Tracking indices replicating the returns of Fed Funds we find the db x-trackers Fed Effective Rate ETF (TER 0.15%) and the Comstage Fed Effecive Rate ETF (TER 0.10%). Both are swap-based. In AUM terms, the db x-trackers fund is the bigger of the two.
Meanwhile, when it comes to short duration USD-denominated fixed income indices, we find a fair array of ETFs. However, none provides an aggregate exposure; instead either tracking only sovereign (e.g. US Treasury 1-3yr) or corporate bond market indices. Moreover, most will tend to have duration metrics above the one year mark. Amongst all available choices we would perhaps highlight the iShares $ Ultrashort Bond ETF, a physically replicated ETF tracking an index measuring the performance of very short-dated US corporate bonds. It charges a TER of 020% and generally displays average duration below one year.
