Morningstar

ETF Invest Conference
Investable Ideas, Engaging Strategies.

PIMCO's ETF Money Market Killer

Scott Burns: Talking ETFs with PIMCO. Hi there I’m Scott Burns Mornnigstar’s
Director of ETF Research coming to you live for Morningstar’s premium
ETF invest conference. Joining me today is Dawn Suskind Director of
ETF Product Management with PIMCO. Dawn thanks for joining me.

Dawn Suskind: A pleasure good to be here.

Scott: So Dawn you know PIMCO is actually coming with the new kid’s on the
block in the ETF space and of course you known, you know it’s one of the
largest asset managers in mutual fund space. What prompted PIMCO to
look at the ETF wrapper and vehicle and move into that product?

Dawn: Well you know the main thing we want to provide is access. Investor
access to what we’re doing. We know that people are interested in
PIMCO’s views on the market and we also know that people have strong
preferences for the benefits of the ETF vehicle whether its tax preference
or if they want to get the same expense ratio as everyone in the fund or if
it’s the convenience of trading a list of security.

Really there’s a set of investors that love ETFs and we want to make
PIMCO available to those folks through the ETF.

Scott: That’s great and you guys have actually had you know for such an early
start a very successful start you know namely in the active ETF space you
know we’ve looked at active ETF fund flows, although we’re seeing
traction in a lot of different products, you know there is one real standout
and that’s your short duration active product with a ticker mint MINT
what do you think is really behind this excessive mint which has gotten his
biggest billion dollars I think you know over the past few months maybe
it’s $800 million but it’s big. Let’s just kind call it that?

Dawn: Yeah I think it’s a combination of things. I think PIMCO has a cash
management expertise that underlies all of our investing strategy so our
cash desk overseas at any point in time 2 to 300 billion dollars worth of
cash so what MINT is this is an essentially an appendage to that discipline
and that capability and it again provides access to anyone with a cash
allocation that maybe is a frustrated with what they’re getting on their
money market funds and wants to take a little bit of additional risk maybe
outside the money market universe.

In accessing experienced manager that’s you have cash equivalent and
cash management expertise.

Scott: Is Mint the money market killer?

Dawn: Well it could be that, that would be great if it was. I think— no there’s
always going to be a place for money market investments you know we
don’t recommend MINT for somebody who needs cash overnight or needy
next day, next week liquidity. Hopefully people think of their allocations
in a tiering approach so you have the media cash needs and that’s not what
meant as appropriate for.

Then you have none immediate maybe weeks or months or even you know
longer out where your tactically your strategically sitting on some
allocation of cash maybe your out of the markets, maybe you have a
specific expense in the future for institutional clients they have a whole
range of reasons why they may be in and out of cash for some time longer
than the horizon of their money market investment.

Scott: Yeah and I know when you guys launched Mint you came in and talked to
the research team and myself about it. One of your chief concerns was you
know who should be using mint and really in particular from a dollar that
dollar is invested perspective I mean mint isn’t really for all applications is
it?

Dawn: No, it’s not for the immediate cash needs so if you need cash immediately
that’s not for Mint and if you have a five year liability, if you’re reserving
for a college education 15 to 20 years from now you could probably afford
to take more risk once available in Mint.

Scott: Well I mean more from the perspective of when you’re taking the
transaction cause of an ETF if that’s going on you know Mint isn’t really
appropriate for somebody who’s looking a park $2,000.

Dawn: Right.

Scott: You know it’s kind of depend on each individual investor what their
transaction cost are so yeah some people don’t pay commissions, some
people do so I think to your point you want to look at the expected return
as a function of yield and how that compares to you know the transaction
cost roundtrip.

Dawn: Right you know across your other product line I know you’re active min I
bond.

Scott: I took a look at the assets recently and they’ve been growing nicely a nice
business area is that fund progressing you know as you would like or
expect or has it been positive, negative?

Dawn: You know there are two many funds and relatively new and like you said
they’ve been growing nicely. You know the important thing was
municipal bonds category is that in our views is that you really want to be
specific on what is you receive and what is the revenue stream that
supports that issue or stability to repay and so you know state issuers, the
tax revenues are uncertain, there’s budget issues at the state level we really
with an actively managed portfolio can focus on the bonds that we think
are good credit quality.

The other approach to buying or another approach to buying the mini
market is to buy individual bonds that can present some concentration risk
or to take the index and if you own a CAP laid index then you’re
essentially taking your largest exposure to the most indebted issuer which
is not generally what you want to do.

Scott: No for sure. Now you know step in away from that specifically you know
given kind of what I would call the success of your 4-A into the ETF
market a little bit. I know you can’t really talk about what’s on the hopper
you know for legal reasons but maybe you can talk about your product
development process a little bit, you know how is it that you guys are
looking at areas of opportunity for future launches you know whether
active or passive?

Dawn: With the, I’ll split into those two categories now with the active and
passive so with active with ETF we disclosed the whole portfolio to
anybody that wants to see that’s on a public website so that has a lot of
advantages for investors who really want to know what’s in their portfolio.
We also need to protect investor of the return potential for the investors in
our funds so for certain strategies it wouldn’t be appropriate to show the
market what’s happening within a portfolio.

Scott: So you just tell me total return in an active ETF we’re just not going to see
that. I know I ask you this every talk yet.

Dawn: In its current form. Never say never but you know some of the trading
strategy that we run you know, it wouldn’t be fair to our investors to show
the whole market what we’re doing with their investment.

Scott: Sorry for interrupting then.

Dawn: No, no that’s fine that’s fine. You know maybe some day.

Scott: Some day.

Dawn: You’ll never know. On the index side we’re very focused on providing
index is that our stable and scalable that we think are appropriate tools for
investors so with fixed income because of our background is an active
manager. We have specific views on where its’ appropriate to have
differentiated exposure in the fixed income market place and so if you
look at our tips, strategies for example we split up the curve into short
term tips, long term tips in a broad exposure and that avails investors the
opportunity of tactically getting exposure to inflation versus treasuries and
different environments.

Scott: Were you kind of surprised when we first looked at the tips that the curve
hadn’t been broken up yet?

Dawn: Yeah I don’t know for your surprise excited by the opportunity. You know
it’s we’re going through a face and we’ve been going through a face
where there’s greater granularity coming out in fixed income with ETFs
and certainly that’s been the trend with equities to over times so where
there are opportunities like that you know we and others want to you know
make those granular exposures available to investors providing there’s a
real value to having that granularity.

Scott: Yeah you don’t really expand in investor tool kid that’s one thing I’ve
always been kind of amazed by so we spend all this time slicing and
dicing our equity holdings even in the most you know strategic/asset
allocation portfolio and yet fixed income is getting maybe inter media
bond and a tips allocation and that’s it maybe some cash money market or
something so I’ve always wondered, why haven’t we put more time into
the fixed income side and I do think you know in today’s risk environment
and actually given where the population is going in terms of retirement
that we’re going to start seeing a lot more slicing and dicing in the fixed
income world and it looks like you guys agree.

Dawn: Well you know it’s the type of things we’ve done in our active portfolios
for a long time so to the extent the expertise the knowledge and you know
the ability to discern between different sectors kind of becomes more
mainstream than certainly those tools will be useful.

Scott: Alright well Dawn congratulations to you and your team with so far been
a very successful launch and thanks for joining us.

Dawn: My pleasure thank you.

Scott: And I’m Scott Burns with Monringstar, thanks for watching.