Date Launched: Nov 30, 2009
Links: Website, Factsheet, Prospectus
Investment Strategy:
(MUNI: 51.47 0.00%) is an Active ETF that is intended for investors looking for tax-exempt income. It invests at least 80% of its assets (under normal conditions) in intermediate duration, high quality municipal bonds which provide interest income that is free from federal and sometimes state tax. The fund can only invest in US dollar, investment-grade bonds which are selected for the fund through research done on the credit quality of the issuing municipalities with an effort to avoid weak issuers. Credit quality is monitored on an on-going basis to allow for adjustments in the portfolio in times of market stress. MUNI also seeks to provide investors with active management of capital gains and losses and the average duration of the portfolio is between 3-8 years. MUNI does not invest in futures, options or swaps. Its performance is benchmarked against the Barclays Capital 1-15 Year Municipal Bond Index.
Portfolio Managers:
PIMCO serves as the investment manager of MUNI. PIMCO has more than $940 billion in assets under management as of Sep 30, 2009.
John Cummings – Executive Vice President at PIMCO, joined PIMCO in 2002 before which he served as Vice President of Municipal Trading at Goldman Sachs. He has 28 years of investment experience.
Past Performance –
1. A comparative fund managed by PIMCO is the PIMCO Municipal Bond Fund A, run by John Cummings himself which also invests in investment grade municipal bonds with an average duration between 3-10 years. This fund has outperformed its benchmark the last 1-yr period but has underperformed in a 3-yr, 5-yr, 10-yr period as well as since inception.
The Numbers:
Expense Ratio – Capped at 0.35% till Oct 31, 2010 (by contractual agreement), 0.48% after that.
Average Volume – 4,451 shares
What’s special about it?
1. MUNI was the first actively-managed bond ETF on the market that invests in intermediate tax-free munis. If you’re looking for tax-free current income from an actively managed portfolio, then this is for you. Every other bond ETF in the muni space is an unmanaged, index ETF which gives MUNI quite an edge over competition like the iShares S&P National Municipal Bond Fund (MUB) though it has a lower expense ratio of 0.25%.
2. MUNI also provides investors with the potential to avoid credit losses that would normally be taken by unmanaged index ETFs, thanks to the active management of the fund.
Analysis:
Positives –
- With higher taxes expected in US in the years to come, being part of a portfolio that focuses on providing investors with tax-free income can be valuable, especially for higher tax-bracket investors, and PIMCO is easily the best name in the relatively small space of muni ETFs issuers.
- Unlike index bond ETFs, which depend on the rating agencies for credit analysis, PIMCO analyzes each municipality’s fundamentals and MUNI provides access to that expertise.
Negatives –
- With a current market cap of $13.1 million, MUNI is large enough to make the top 3 list amongst all existing Active ETFs on the market, but it is still quite puny. Granted that it’s barely been 2 months since its launch, still, MUNI has not been as successful in pulling in money as MINT, the low duration fund also from PIMCO, which already has a $115 million market cap even though it launched only 15 days before MUNI. Unless MUNI gains some traction, liquidity for the existing investors might become an issue down the road.
Performance to Date, compared to the iShares S&P National Municipal Bond Index Fund (MUB), a close match to the Barclays Capital 1-15 Year Municipal Bond Index:
Disclosure: No positions in above-mentioned names.
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