PIMCO broke into the actively managed exchange-traded fund arena today with the PIMCO Enhanced Short Maturity Strategy Fund, MINT.

This latest ETF sets out to offer investors an alternative to the near zero-yield money markets many investors fled to during the recent recession. Jerome Schneider, an executive vice president in PIMCO’s Newport Beach office, will manage the fund.

“You have more than $3 trillion sitting in the money market space as a result of the last 12 to 18 months and now that we’re getting into the daylight, investors are reassessing their liquidity assessments and realizing that they don’t need to be paying for that overnight liquidity,” Schneider says. As investors start to move out of money markets, “the natural step is to give investors something that will offer them incremental yield.” Schneider, who is also deputy head of the money market and funding desk, points out that actively managed ETFs such as MINT can offer both transparency and that incremental yield.
 
Since the first actively managed ETF was launched last May, several new players have entered the space, including Grail Advisors, WisdomTree and Barclays.

This is the first actively managed ETF from PIMCO, although the fund has been in registration with the Securities and Exchange Commission since September of 2008.   PIMCO currently has four more actively managed ETFs in registration with the SEC.

But despite the number of products that have suddenly filled the space, actively managed ETFs have yet to pick up steam. They account for only 0.09% of the ETF industry’s total assets. Further, the largest active ETF, the WisdomTree Dreyfus Chinese Yuan fund, held only $293.6 million as of Nov. 16.

One reason for the delay in asset gathering is that active management makes it difficult to deliver the low-cost and transparency that attract investors to ETFs in the first place. Most actively managed ETFs deviate from their underlying index using complex instruments such as derivatives to deliver returns. Transparency becomes increasingly difficult for managers of active ETFs, as fear of front-running makes them apprehensive to post daily holdings on the fund’s website, as is required of all ETFs.

But MINT will be different, Schneider says, because it is a fixed-income active ETF. The fund, therefore, will invest in mostly bonds and stay away entirely from swaps, futures and options, he says. Schneider also does not have to worry about other managers front-running his trades, as managers of an equity-based active ETF would.

PIMCO first entered the evolving ETF space last June with its 1-3 Year U.S. Treasury Index Fund. The company currently has 10 ETFs trading on the open market including MINT, and six ETFs in registration.