Pimco, the United States-based global leader in active fixed-income management - which actively manages more than $2 trillion in assets - is aiming to democratise fixed-income investing in Australia by providing investors with institutional-grade new investment solutions.
While the Allianz-owned Pimco has operated in Australia for around 30 years, it plans to compete with listed credit trusts for the mouthwatering opportunities the Australian market has thrown up due to the recent ban on the $43 billion bank hybrid market.
Despite self-funded retirees relying on bank hybrids for franked income to live on, the regulator recently banned bank hybrids – which have been operating in Australia for 15 years – after concluding they expose retailer investors to too much risk.
Bond ETFs in: Bank hybrids out
With its eyes squarely set on replacing bank hybrids, Pimco - which launched MINT the world’s first active fixed income ETF in 2008 - today launched four new active exchange-traded funds (ETFs).
In addition to attracting bank hybrid money, which typically chases returns over 3% over bank bills, Pimco expects these four new ETFs to entice Australia’s yield-thirsty wholesale, retail investors and big super funds.
Pimco’s Australian CEO Sam Watkins expects fixed income ETFs to have a greater impact on investor behaviour as the bank hybrid market finally comes to an eventual end.
While bank hybrids won’t be phased out until 2032, in 2025 alone they will be handing back around $5.2 billion in hybrid securities that will be looking for a new home.
The crumbs are huge
While it will take another seven years for hybrids to close, Liz Moran, bond expert and editorial director of Fixed Income News says that the crumbs left behind by exiting bank hybrids are huge.
“Given that we’re on the cusp of a rate cut, I expect these new funds to do well and investors will also be attracted to the underlying strength of Pimco as a global fund manager,” Moran told Azzet today.
“Investors will be looking to deploy some of the money they previously held in cash, and while there are already 60-plus fixed income ETFs on the ASX, there’s clearly something for everyone.”
Across the board, she expects all fixed income ETFs to benefit from the growing investor realisation they need to add greater certainty and diversity to their portfolio.
Vanguard data shows fund inflows into fixed income ETFs alone in 2024 were around $4.4 billion.
The four new funds
The four innovative active fixed income ETFs Pimco is launching on the ASX are all based on existing funds. The biggest is the $8.07 billion Pimco Global Bond strategy for wholesale-class investors.
While similar bond ETFs are already trading on the ASX, Pimco believes its new product offering is superior. Here's what’s on offer.
- The PIMCO Global Bond Active ETF (ASX: PGBF): Aims for maximum total return while preserving capital by investing in high-quality global fixed interest securities. With a multi-faceted strategy that includes macro analysis, security selection, active duration, and currency management, PGBF focuses on government, corporate, and mortgage securities, providing a core bond holding with low volatility and stable returns, leveraging PIMCO's extensive fixed-income expertise.
- The PIMCO Australian Bond Active ETF (ASX: PAUS): Seeks maximum total return by investing in fixed interest securities primarily in Australian or New Zealand currencies. Employing a similar strategy, PAUS focuses on government, semi-government, corporate, and mortgage securities, designed to stabilise portfolio returns and meet core bond investment expectations while adapting to changes in the Australian credit market and interest rates.
- The PIMCO Diversified Fixed Interest Active ETF (PDFI): Offers a diversified portfolio of Australian and global bonds, serving as a core fixed income allocation. This ETF aims to provide income, capital gains, diversification, and a hedge against volatility in high-risk asset classes, predominantly investing in government, corporate, mortgage, and other global fixed interest securities.
- The PIMCO Global Credit Active ETF (PCRD): Seeking attractive returns through PIMCO’s macroeconomic insights and bottom-up credit research. Aiming for higher total return potential than core government bonds and cash, PCRD offers capital preservation and diversification as a high-quality complement to traditional bond holdings.
This article does not constitute financial product advice. You should consider independent advice before making financial decisions.
