Two More Bond ETFs from PIMCO: FIVZ and ZROZ

PIMCO kicked off the month of November with two new ETFs yesterday (11/02/2009). These are the 1st and 2nd launched in November, the 6th and 7th ETFs from PIMCO, and the 999th and 1,000th listed for U.S. trading.

PIMCO 3-7 Year U.S. Treasury Index ETF (FIVZ) (FIVZ information page) is designed to capture the return of the bellwether 5-year Treasury note. FIVZ has two primary competitors: iShares Barclays 3-7 Year Treasury (IEI) (IEI overview) with a weighted average maturity of 4.9 years and an expense ratio of 0.15%; SPDR Barclays Intermediate Term Treasury (ITE) (ITE overview) with a weighted average maturity of 4.3 years and an expense ratio of 0.13%.

PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (ZROZ) (ZROZ information page) is designed to capture the return of long-term U.S. Treasury Principal STRIPS. Long-term zero-coupon bonds are highly sensitive to changes in interest rates and can be as volatile as the stock market. ZROZ will compete with Vanguard Extended Duration Treasury ETF (EDV) (EDV snapshot) which invests in 20+ year zero-coupon bonds and has an expense ratio of 0.14%

Both funds will pay dividends monthly and cap expenses at 0.15% for one year. Neither fund had any volume on their first day of “trading”.

PIMCO entered the ETF fray to tremendous fanfare with the release of their first fund back in June. Since then, they seem to be taking more of a “build it, they will come” attitude, an approach that seems not to be working very well. They launched the PIMCO 7-15 Year U.S. Treasury Index ETF (TENZ) in September without even announcing it. At least they managed to get out a press release for FIVZ and ZROZ.

The shortcomings of the PIMCO ETF marketing plan can be seen in the low trading levels for their funds. Zero volume days are still a regular occurrence for TENZ, and now FIVZ and ZROZ have started off on the same foot. Their most successful ETF product has been PIMCO 1-5 Year U.S. TIPS Fund (STPZ), a fund that has no competition.

Disclosure compliant with FTC 16 CFR Part 255 covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

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Comments

[klarsolo:]

How can a long end strips fund pay dividends monthly?

Nov 03 10:48 AM

[Ron Rowland:]

I wondered the same thing but took that data point directly from the fact sheet. They even list one of the benefits of the fund as "quarterly index and portfolio rebalancing schedule matched to quarterly dividend payments, which may reduce trading expenses."

Nov 03 12:39 PM

[Abridge:]

The Fund may invest in derivative instruments, such as options, futures contracts or swap agreements.
The Fund may purchase and sell securities on a when-issued, delayed delivery or forward commitment basis.

Gain on any sale may also produce dividend.

In speaking with PIMCO this may produce a dividend.

It will interesting to see if they can deliver.

Nov 05 02:06 AM