Fixed income specialist PIMCO has launched a new actively managed ETF that aims to capture a high level of current income within the tax-advantaged US municipal bond market.
David Hammer, Managing Director and Head of Municipal Bond Portfolio Management at PIMCO.
The PIMCO Municipal Income Opportunities Active ETF (MINO US) has been listed on NYSE Arca with an expense ratio of 0.39%.
It has come to market with approximately $40 million in assets.
The fund is managed by David Hammer, Managing Director and PIMCO’s Head of Municipal Bond Portfolio Management; Rachel Betton, Senior Vice President and Portfolio Manager, and Kyle Christine, Vice President and Portfolio Manager.
According to PIMCO, the fund is designed to be the highest income and return strategy amongst the firm’s existing municipal bond ETFs which tend to focus more on duration positioning.
David Hammer said: “The lower-for-longer interest rate environment coupled with an evolving municipal bond market has created opportunities for those who can actively invest in bonds across the risk spectrum. By broadening the investable universe to include a larger portion of the municipal market, the fund aims to generate attractive risk-adjusted returns without concentrating investments in the riskiest tiers of the market.”
Investment approach
The fund invests primarily in tax-exempt municipal bonds issued by states, local governments, and their agencies.
According to the prospectus, the fund may also invest in so-called ‘private activity’ bonds which are issued by municipalities on behalf of private or not-for-profit organizations. The proceeds from private activity bonds are typically used for social causes such as building and improving housing facilities, hospitals, education centers, and transportation infrastructure. While they can enhance the ESG profile of the portfolio, private activity municipal bonds may still be subject to federal taxes.
Up to 30% of the portfolio may be allocated to high-yield municipal bonds, a feature that gives the managers the flexibility to find attractive risk-adjusted returns even when the broader interest-rate environment is challenging.
The strategy targets an average portfolio duration within two years of the benchmark Bloomberg Municipal Bond Index which, as of the end of June, was 5.96 years.
PIMCO notes that MINO maintains a higher risk profile, with the potential for greater gains, compared to the firm’s two existing active muni bond ETFs – the $650m PIMCO Intermediate Municipal Bond Active ETF (MUNI US) and $550m PIMCO Short Term Municipal Bond Active ETF (SMMU US).