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.
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.