Product review: PIMCO/Source German government bond ETF
American fixed income specialist partners with ETF provider for fund focusing on German bonds
Exposure to the German government bond market is the objective for a new ETF formed out of a partnership between PIMCO and Source.
PIMCO German Government Bond Index Source ETF, also known as BUND ETF, is listed on the Deutsche Börse (XETRA) and aims to track the Market iBoxx € Germany Index.
Registered for sale in the UK and nine other European countries, the Ireland-domiciled ETF is denominated in euros and has a management fee of 0.15% pa.
The BUND ETF, which is managed by PIMCO senior vice president Michael Surowiecki, has a physical replication model designed by PIMCO and utilises the firm’s passive management strategies that aim to minimise index-tracking differences without using securities lending.
Source and PIMCO said this ETF combines the efficiency and liquidity of an exchange-traded fund with the American asset manager’s expertise in managing bond portfolios.
This ETF has two qualities that make it stand out from the crowd. First, it has what might be the longest name in the ETF market, so it is sure to be noticed. Second, it is the latest fund to be formed out of the PIMCO-Source management duo, which focuses on various bond or currency markets and takes advantage of the firms’ fixed income expertise.
Tracking the €1.1trn German government bond market, this fund is pitched as a way for investors to switch quickly between ‘risk-on’ and ‘risk-off’ positions in uncertain markets.
When it comes to European government bonds, the German variety is seen as one of the safest. In fact, German borrowing costs continue to fall as investors turn to safe-haven assets.
Because of Germany’s position as the strongest economy in the EU and therefore the most trustworthy borrower, using its bond market as a safe haven can be beneficial even if yields are low and prices are higher than in other realms.