PIMCO has unveiled the PIMCO Enhanced Short Maturity Active ESG ETF (EMNT US), providing actively managed exposure to short-duration debt instruments while focusing on issuers with strong environmental, social, and governance (ESG) practices.
For all intents and purposes, the fund presents an environmentally and socially conscious alternative to the $13.6 billion PIMCO Enhanced Short Maturity Active ETF (MINT US), PIMCO’s flagship ETF.
The fund has listed on NYSE Arca and comes with an expense ratio of 0.24%.
As with MINT, the fund aims to deliver maximum current income, consistent with the preservation of capital and daily liquidity.
The potential for enhanced income and total returns compared to traditional money market funds comes at the expense of modest increases in credit and duration risk.
The fund primarily invests in investment-grade debt securities (including mortgage or asset-backed securities) rated Baa or higher by Moody’s or equivalently rated by S&P or Fitch, and principally targets US dollar-denominated securities. It may invest up to 10% of its total assets in securities denominated in foreign currencies, and when it does, the fund’s managers will seek to eliminate foreign currency risk by hedging exposure.
The average portfolio duration of the fund will vary based on house market forecasts but will normally not exceed one year.
When selecting investments, the fund’s managers will harness PIMCO’s ESG framework which favours issuers with environmentally responsible practices, strong corporate governance, and industry-leading social policies. Issuers deriving significant revenue from alcohol, tobacco, weapons, gambling, coal, and adult entertainment are automatically excluded.
In determining the efficacy of an issuer’s ESG practices, PIMCO will use its own proprietary assessments of material ESG issues but may also reference standards as set forth by the United Nations and other recognized global organizations. Additionally, PIMCO says it may engage proactively with issuers, including via direct dialogue, to encourage them to improve their ESG practices.
Through these activities, PIMCO seeks to identify opportunities for an issuer to improve its ESG practices and will endeavour to work collaboratively with issuers to establish concrete objectives and to develop a plan for meeting these objectives. The fund may invest in securities of issuers whose ESG practices are currently suboptimal, with the expectation that these practices may improve over time.
The fund will be managed by Jerome Schneider, Managing Director and Head of Short-Term Portfolio Management; Jelle Brons, Executive Vice President and Portfolio Manager; Andrew Wittkop, Executive Vice President and Portfolio Manager; and Nathan Chiaverini, Senior Vice President and Portfolio Manager.
Commenting on the launch, Schneider said, “Sustainable investing is becoming a priority for many investors who seek positive returns alongside the ability to drive positive change. This active ETF is designed to provide capital preservation, daily liquidity, and attractive return potential to investors who seek to invest in companies with best-in-class ESG practices.”
The fund has been seeded with $17 million and is the first ESG-screened ETF to target the ultra-short-term debt market.