PIMCO launched the Intermediate Municipal Bond Strategy Fund (MUNI) today, advancing its march into the market for actively managed exchange-traded funds. 

MUNI is the first actively managed municipal bond ETF, according to Don Suskind, a PIMCO vice president and head of the firm’s ETF product management team. The fund aims to give investors high quality, intermediate maturity municipal bonds whose income is exempt from federal and, in some cases, state tax. It will also avoid the alternative minimum tax, says Bob Fields, senior vice president and product manager for municipal bonds. MUNI will have a net expense ratio of 0.35%.

John Cummings, executive vice president and head of PIMCO’s municipal bond desk, will manage the fund, which will invest in bonds issued by municipalities across the country. Cummings works very closely with Bill Gross, PIMCO's co-chief investment officer and head of its investment committee, and takes his views directly from him. Cummings has 28 years of experience in the municipal bond market. Before joining PIMCO in 2002, he was a vice president of municipal trading at Goldman Sachs.

PIMCO intends to rely on its vaunted credit-analysis ability to manage the fund. “We are in an environment where there is a significant amount of stress,” Fields said. “Municipalities are feeling the brunt and confronting much of that economic stress.” PIMCO will analyze each municipality’s ability to meet debt payments, collect taxes and use federal stimulus funds. PIMCO can adjust the portfolio as credit conditions change in the municipalities issuing the underlying bonds, as well as harvest losses as a way to offset potential taxes on investors’ capital gains, Fields says.

PIMCO introduced its first actively managed bond ETF, the Enhanced Short Maturity Strategy Fund (MINT), last month. It has three other actively managed ETFs in registration with the SEC, according to Suskind.