PIMCO, the California-based ETF issuer best known for its active bond funds, has put another active product into its exchange-traded pipeline. The latest proposal from the bond fund giant is the PIMCO Foreign Currency Strategy Exchange-Traded Fund, which would would give investors exposure to foreign currencies through an actively-managed ETF. PIMCO currently offers 13 ETFs, four of which are actively managed. Earlier this year, the company made waves when it filed for an ETF version of its ultra-popular Total Return Fund. Details on the proposed active currency ETF are still scarce - the proposed product’s expense ratio and ticker symbol were not released–but the recent SEC filing did shed some light on the likely strategy.
The proposed fund would invest at least 80% of its assets in currencies of foreign countries, with a focus on those that are likely to outperform the U.S. dollar over the long term. In pursuit of this objective, PIMCO will evaluate other currencies based on a number of fundamental factors both in terms of public policies of the respective countries as well as economic statistics. Some of the ways in which PIMCO will narrow down the field is by looking at the following areas of a currency market: Relative interest rates, inflation rates, exchange rates, monetary and fiscal policies, trade and current account balances, as well as legal and political developments. It will include both developed market and emerging market currencies.
Additionally, it should be noted that the fund has the option to be in short-term fixed income instruments, money market securities, and currency forwards backed by high-quality, low duration securities. This method could help the fund avoid dominating certain markets - especially if the product becomes a hit with investors - and it could help spread the risk around as well. Furthermore, with the inclusion of bonds and money markets, this product starts to mirror the ultra popular MINT product, which has over $1 billion in assets.
Currency ETF World
Currently, there are 30 ETFs in the Currency ETFdb Category, including single currency and basket products that employ multiple structures (WisdomTree’s suite of currency ETFs are all actively-managed 1940 Act ETFs, while the CurrencyShares funds are Grantor Trusts).
Among the most popular active ETFs in the space that do not focus on a single currency are the Dreyfus Emerging Currency Fund (CEW) and the Dreyfus Commodity Currency Fund (CCX), both from WisdomTree. These two active products have already experienced a great deal of success as they have amassed $550 million and $150 million in assets, respectively. Both of these products have a pretty narrow focus and only hold about a dozen currencies each, targeting a specific corner of the global currency market.
So while CEW and CCX will not provide identical exposure and will probably be far more concentrated than the proposed fund from PIMCO, they are likely to give the fund some level of competition. Throw in the other basket currency funds that track a benchmark such as UUP and DBV and it looks as though PIMCO may have its hands full in terms of competition in this increasingly competitive space. Of course the PIMCO name is often enough to drum up significant interest, so don’t be surprised if there’s a new kid in town in the currency arena sometime this year.
Disclosure: No positions at time of writing.
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