PIMCO Enhanced Short Maturity Active ETF (MINT)

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On this episode of the “ETF of the Week” podcast, Tom Lydon discussed the PIMCO Enhanced Short Maturity Active ETF (MINT) with Chuck Jaffe of “Money Life.” The pair talked about several topics regarding the fund to give investors a deeper understanding of the ETF overall.

PIMCO Enhanced Short Maturity Active ETF (MINT)

Chuck Jaffe: One fund on point for today. Two experts to talk about it. Welcome to the ETF of the Week Podcast. Yes, this is the ETF of the Week Podcast, where you get the latest take from the experts. VettaFi is a company and a website that has developed everything you need to be a smarter, savvier, better investor in exchange traded funds. Check out their tools and their research and their news for yourself by going to VettaFi.com. Joining me now is Tom Lydon. He is the vice chairman at VettaFi. Tom, it’s great to chat with you again.

Tom Lydon: Great to be back. Thanks, Chuck.

Chuck Jaffe: Your ETF of the Week is?

Tom Lydon: The PIMCO Enhanced Short Maturity Active ETF (MINT).

Chuck Jaffe: Really interesting time for this pick. Because everybody’s waiting for the Fed to start cutting rates. We’ve seen rates generally coming down, but the big cuts are coming. I talked to a lot of investors about whether they want short maturities or do they want to lengthen their maturities. Even though we still have an inverted yield curve, most are telling me they want to lengthen their maturities right about now.

So why are you looking at short durations right now?

Tom Lydon: Great question, Chuck. We’ve talked in the last three months about all the money that’s on the sidelines. JP Morgan got 25% of their managed accounts in cash, and Goldman Sachs, 30%. And that’s great. As long as you’re making money when you have money on the sidelines. Again, just a few short months ago, money market funds were paying 5%.

Today, it’s a lot less. Because the Fed hasn’t cut rates in anticipation of rate cuts that might be coming. As you pointed out, we’re already seeing the bond market kind of come back to the surface. With that in mind, even though you’re money-safe and you’re getting a decent yield, it doesn’t feel as good as it was just a few months ago.

So there are other opportunities out there outside of money market funds. You could go longer maturity. And if rates get cut with longer maturity, especially in corporates and high yields, you could have some appreciation in your bond portfolio as well. But the whole idea about keeping money safe or keeping your powder dry is not having that volatility.

And you don’t want to expose yourself as you go longer. We might see inflation rears its ugly head again. That being said, there are a lot of great fund managers out there who play in the short-maturity space. So still duration might be one to six months or one to eight months.

And not only are they buying Treasuries that you might see in money market funds, but they can also put corporates, high yields, and even munis sometimes into that portfolio mix that can keep the stability of the portfolio intact, but also provide some enhanced yield. So, for example, if your money market fund today is paying 4% percent, you look at MINT and it’s paying close to 5.5%.

Is it worth that little added risk? I think so. Because you’ve got some real seasoned portfolio managers behind it who’ve done very, very well. That’s not only in rising markets but especially in declining interest rate markets.

Chuck Jaffe: Pimco was really the first company to come out with actively managed bond funds. And there are times here on ETF of the Week when we tend to look at what’s new and what’s newfangled. Is there a benefit to picking the old-guard manager when you’re looking at an actively managed bond fund?

Tom Lydon: Well, just like the way we used to look at the fund companies, the mutual fund companies, the ratings, the performance — all that matters. And if you go back and see how fixed ncome managers performed in rising markets and how they perform in a declining interest rate, markets mean something. At the same time, these ETFs weren’t just launched yesterday.

They’ve put up some pretty good track records and have done exactly what they’re supposed to do. So with that in mind, Chuck, we know a lot of advisors are working with clients as we go into this new year. They’re talking about the money that they had on the sidelines for their clients. Even though it might have been in money market funds, that’s great.

But those yields aren’t there today. So guess what? They’re starting to. Yes, maybe go a little longer maturity, maybe go more active, maybe go more active in areas that Pimco plays in or other fixed income managers plan to squeeze out a little bit more yield. But, you know, if we’re in a situation where they can maintain that 5%, 5.5% yield in a declining rate environment where money market rates might get in the three areas, that’s going to be pretty attractive.

Chuck Jaffe: When you said this was your pick, here I am thinking short maturities. But of course, compared to money market funds, yes, it’s short maturities. Yet there are longer maturities than money market funds. So it is lengthening maturities. I wouldn’t imagine a pick like this one is really a 200-day moving average play.

This is really more, where are you parking your short-term money, and when do you need that money to go? But I could be wrong about that based on the trends. So is there much trend-following to do in a fund like this one?

Tom Lydon: I think you’re right, Chuck. It’s more of a cash management discussion. I think we’re still scratching our heads, when really, 60/40 has come back to life and for all the right reasons. But still, there’s over $7 trillion on the sidelines in money market funds. And there’s $8 trillion in passbook accounts or savings accounts in banks. So $15 trillion total that’s getting not that much of a return.

I mean, money market funds. Now, you know what banks are paying. If you don’t designate that, you put it in the money market fund or even a CD. So investors, especially if they feel more confident about the market, and as we look to a new year, if we do see declining rates, if that helps to fuel not only the fixed income market but also the equity market, great.

But if people want to say to themselves, that’s fine, I still want to keep a chunk on the sidelines, here’s a great option that would maintain those higher yields, if you’re planning for an extended period to always have some powder dry.

Chuck Jaffe: I will give our audience some fair credit that they’re investors who know a lot about what they’re doing. This is the kind of pick that, oh, by the way, maybe the thing they’re telling their family members about who have a lot more money on the sidelines and who are nervous. So there then has to be one question that they’ve got to be prepared to answer. That is: If you’re telling your octogenarian mother or father, come on, get a little bit more return and do this.

The response they’re going to give you is, but in my bank, I’ve got FDIC insurance and I don’t worry. Obviously, you’re not exactly worried about defaults, but you have to say something, right? Like, how do you explain to them? Yeah, this is that equivalent and you don’t worry about the fact that there’s no FDIC insurance on it.

Tom Lydon: Well, FDIC insurance is really the security around the bank. The bank itself, I think most people today feel very comfortable with these established brokerage companies, the Fidelity’s of the world, the Schwab’s of the world. Even the bigger companies, Morgan Stanley’s, the wirehouse firms, and all of them offer a whole variety of choices.

It really comes down to, not, is my bank going to be solvent in the future. It’s more about, is my money going to be less volatile in the future while it’s also kicking off a decent return. So we went through a banking crisis in the last year. I think we learned something from that. I think the government did a great job of shoring up maybe a one-off situation that was a little bit skeptical in nature.

But now not only do markets feel good on the equity and fixed income side, the banking system seems pretty much together. I think we concentrate more on the investment vehicle itself as opposed to the umbrella that it’s sitting under.

Closing Thoughts

Chuck Jaffe: And that’s why we’re focused this week on MINT, the PIMCO Enhanced Short Maturity Active ETF, which is the ETF of the Week from Tom Lydon at VettaFi.com. Tom, great stuff, as always. Talk to you again soon.

Tom Lydon: Thanks Chuck.

Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. Yup, that’s me. You can read all about my hour-long weekday podcast by going on MoneyLifeShow.com or by searching on your favorite podcast app. To learn more about investing in exchange traded funds, check out everything they’ve got for you at VettaFi.com or on Twitter, @Vetta_Fi, and Tom Lydon, their vice chairman, and my guest, he’s on Twitter too. He is @TomLydon. ETF of the Week is here for you every Thursday. Thanks so much for joining us. We’ll see you again next week. And until then, happy investing, everybody.

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