Your ETF Questions Answered
Kanish Chugh, Head of ETF Sales
Hi, I’m Kanish Chugh, Head of ETF Sales at PIMCO Australia. You may have heard about ETFs and wondered what they’re all about. Let us now help demystify this exciting evolution in investment products.
What is an ETF?
Exchange Traded Funds, or ETFs for short, are investment funds that you can buy and sell on an exchange via an online broker or financial adviser, just like stocks.
ETFs can be bought and sold throughout the trading day, and they give everyday investors access to a diverse range of investment strategies, markets and asset classes, that might otherwise be difficult to invest in. This opens up more choices for investors, helping them to diversify and balance their portfolios.
Now, ETFs can be managed in two ways, either actively or passively.
Passive ETFs aim to replicate the performance of a specific benchmark, sector or commodity.
Active ETFs, meanwhile, are managed by investment professionals who seek to outperform a benchmark or achieve specific investment objectives.
Active ETFs give investors access to expert portfolio managers, enabling them to build portfolios in ways that align with their individual goals and risk tolerance.
Are ETFs liquid?
There is more liquidity in an ETF than what investors see on the screens of their respective trading platform. As long as the underlying assets are liquid, the ETF itself will be liquid, allowing investors to buy and sell it easily.
To make trading smoother, ETF providers work with market makers. These intermediaries help ensure there’s sufficient liquidity for ETF units on the exchange.
Since ETFs are open-ended, their units are created or redeemed based on investor demand, ensuring that the trading price is closely aligned with the fund’s net asset value.
What are the differences between an ETF and a Managed Fund?
Both ETFs and managed funds are managed investment schemes, but the key difference is that ETFs are listed on an exchange.
So, this means that, unlike an unlisted managed fund, you can buy and sell ETFs exactly like you do a share.
Other differences include investment minimums. ETFs typically have lower minimums — sometimes just one unit — while managed funds typically require a higher initial investment.
ETFs also offer live pricing during market hours, which provide greater transparency regarding the prices at which you are buying and selling.
Why choose active bond ETFs over passive ones?
Many active equity funds have underperformed their passive counterparts over the past decade, leading to a preference for passive equity investments — and passive equity ETFs.
However, the story is different for bonds.
Because bond markets and bond indexes are larger and less efficient than their equity peers, active management has a better chance of delivering index-beating returns in fixed income.
In fact, over 85% of active fixed income funds have outperformed their passive peers, net of fees, over the last 10 years, compared to approximately 40% on average of active equity funds.
Now, unlike the majority of passive ETFs, active ETFs provide access to a team of investment specialists, extensive credit research resources, quantitative analysis, and robust risk management expertise.
This allows experienced active managers to analyse a wide range of factors when deciding which bonds to buy and which to sell, which may help active ETFs outperform passive approaches.
Introducing PIMCO ETFs
PIMCO’s active ETFs are managed using the same investment process, portfolio management teams, and extensive resources that we employ across our US$2.0 trillion in assets under management (as of 30 Sept 2024).
As one of the oldest and largest active fixed income ETF providers in the world, PIMCO has over 40 ETFs listed globally and manages $39 billion in ETF assets.
And we are now excited to introduce four new ETFs to Australia.
Providing Australian investors with easy access to some of our largest core strategies, these ETFs aim to democratize active fixed income investing.
The four new ETFs listed include the PIMCO Global Bond Active ETF, the PIMCO Diversified Fixed Interest Active ETF, the PIMCO Global Credit Active ETF, and the PIMCO Australian Bond Active ETF.
To find out more about PIMCO Australia’s ETF suite and the benefits of investing in active fixed income, visit our website at www.pimco.com/au.