Update: PIMCO Euro Short Maturity Source UCITS ETF

Dieser von Source aufgelegte Renten-ETF ist einer der seltenen seiner Art -- er ist aktiv verwaltetet. Das Performance-Ziel der verantwortlichen PIMCO-Manager lautet EONIA plus und soll mit einem breiten Mix an Kurzläufern erreicht werden.  

Jose Garcia Zarate 06.11.2015
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The PIMCO Euro Short Maturity Source UCITS ETF is an actively managed fund that aims to deliver returns above EONIA (that is, the overnight reference rate for the euro computed as a weighted average of all overnight unsecured lending transactions undertaken in the banking system). The exchange-traded fund manager invests in investment-grade EUR-denominated bonds with very short maturity (mostly up to one year). The ETF distributes dividends on a monthly basis.     

This ETF will primarily appeal to investors seeking a boost in returns over a standard (that is, passively managed) eurozone money market ETF while limiting risk in the process. However, because it is an actively managed fund, investors should not overlook that a) the ETF’s performance will be determined by the investment choices made by the portfolio manager and b) the management charge will be much higher than those levied by passive ETFs.    

Money market ETFs--or close alternatives such as this ETF--can be deployed as a core holding in an investment portfolio as a substitute for outright cash positions. Some investors may also use the ETF to neutralise cash drag (that is, the diminishing effect on portfolio returns caused by holding, rather than investing, cash). Investors using this ETF for cash management purposes will have to carefully consider whether the potential returns (net of fees) on offer are financially attractive relative to cheaper passive alternatives.

Although this ETF is essentially a cash management tool, some investors may see a tactical duration-management use to it. The ETF’s ultrashort maturity bias could allow for duration-shortening plays at times of rising interest rates. We would point out, though, that such use would be mostly suited for investors with an ability to comprehensively monitor economic developments and their implications for European Central Bank monetary policy. 

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Fundamentale Analyse

The eurozone’s economic performance, though up from the lows, remains below potential. Meanwhile, inflationary pressures have been absent since the start of the economic crisis. In fact, disinflation has gathered pace since 2014 on the back of falling energy prices.

Against this backdrop, the ECB retains an ultra-accommodative monetary policy stance, underpinned in zero-bound interest rates--including a negative deposit rate--and a massive quantitative-easing programme involving the purchase of EUR 60 billion of government bonds on a monthly basis until, at the earliest, September 2016. All the while, the ECB remains committed to providing liquidity via short and long-term operations. These policy settings are expected to remain in place for a protracted period. In fact, the ECB is biased to ramping up the stimulus to address downside risks to the outlook.

Relevant money market rates (that is, EONIA) track the movements in ECB interest rates. In the pre-global-crisis years, EONIA tracked the ECB’s main refi rate. However, since 2008 onwards--particularly when the eurozone debt crisis developed--EONIA has tracked the much lower ECB deposit rate, with obvious consequences for the performance of EONIA-tracking financial instruments. 

The initial trigger for this was the freezing of interbank lending in the eurozone, which led commercial banks to park their cash en masse at the ECB. The easing of tensions in the eurozone since mid-2012 has allowed commercial banks to be significantly less reliant on ECB support. However, bar a brief period in 2014 when it reverted to track the ECB refi rate, EONIA has continued to track the ECB deposit rate, which is now negative. The monetary policy outlook in the eurozone means that EONIA should remain in negative terrain for the foreseeable future.

Against this backdrop, and despite the current low-yield environment, one would expect an actively managed fund to easily beat EONIA without taking too much risk. 

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The benchmark of reference for the ETF manager is the FTSE MTS EONIA Index. It measures the total return of a rolling deposit invested daily at EONIA (that is, the overnight reference rate for the euro computed as a weighted average of all overnight unsecured lending transactions undertaken in the banking system). The deposit is compounded daily on a 360-day year convention and is calculated on a T settlement period. The FTSE MTS EONIA Index is calculated daily on a total return basis with price fixings of 09:00 CET. The index is based to 100 on 4 Jan 1999. EONIA is sponsored by the European Banking Federation, which represents the interest of some 5,000 European banks, and by the Financial Markets Association. EONIA is computed with the help of the ECB. The banks contributing to EONIA are the banks with the highest volume in the eurozone money markets. Since its launch in January 1999, EONIA has become the underlying rate of numerous financial derivatives.

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The PIMCO Euro Short Maturity Source UCITS ETF is denominated in euro and distributes dividends on a monthly basis. The ETF is actively managed by PIMCO Global Advisors Limited. As of this writing, the ETF’s portfolio manager is Andrew Bosomworth. Bosomworth is head of portfolio management in PIMCO’s Munich office and has over 15 years of investment experience. The ETF invests primarily in a mix of investment-grade EUR-denominated government and corporate bonds with short maturity (that is, up to three years, but mostly up to one). However, at the fund manager’s discretion, the ETF may also invest in instruments such as emerging-markets or mortgage-backed debt, provided they are investment-grade-rated. The average duration of the ETF will vary in relation to the portfolio composition chosen by the fund manager at any given time. However, the objective is to keep it below one year. PIMCO Source discloses the daily composition of the ETF portfolio, including a breakdown by asset type, maturity, country exposure, and credit rating, on its website. A snapshot as of this writing (early November 2015) showed the portfolio was made up of some 300 bonds, with individual statistical weights ranging from 0.01% to 4.75%. The distribution by asset type was 54% investment-grade corporate, 20% government, 12% mortgage-backed, and the remaining 14% in cash. PIMCO Source ETFs do not engage in securities lending.

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The annual ongoing charge for this actively managed ETF is 0.35%. This compares to an average of 0.15% for passive ETFs providing exposure to the eurozone money market or those biased towards the very short-dated segment of the eurozone bond market. Additional costs potentially borne by investors and not included in the ongoing charge include bid/offer spreads and brokerage fees when buy/sell orders are placed for ETF shares.

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An EONIA-beating alternative to the PIMCO Source ETF is the Lyxor Smart Cash ETF. It targets a minimum return of EONIA plus 15 basis points by providing exposure to a mix of secured swap and repo agreements. The ETF has a variable 0.05%-0.20% ongoing charge structure. 

Other alternatives are pure passive ETFs. One strand of eurozone money market ETFs track indexes that replicate the performance of a cash deposit remunerated on a daily basis at EONIA. Amongst these, we find the Lyxor Euro Cash ETF (variable ongoing charge with a maximum of 0.15%), db x-trackers EONIA TRI ETF (TER 0.15%), and Comstage EONIA ETF (TER 0.10%). All these ETFs are swap-based.

Other eurozone money market ETFs track indexes that measure the performance of the EUR-denominated ultrashort government-bond or T-bill market. Amongst these, we find the Amundi Cash 3M EuroMTS Investment Grade (synthetic; ongoing charge 0.14%) and the iShares EUR Government Bond 0-1 (physical; 0.20%).

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Über den Autor

Jose Garcia Zarate  ist Senior ETF Analyst bei Morningstar