Pimco unveils actively managed foreign currency strategy ETF

Feb 12th, 2013 | By | Category: Alternatives / Multi-Asset

Global investment manager Pimco has unveiled the Pimco Foreign Currency Strategy ETF (FORX), listed on the NYSE Arca. The actively managed exchange-traded fund has been created to offer investors the potential to benefit from fundamental changes in global currency dynamics by diversifying away from the US dollar.

Pimco unveils actively managed foreign currency strategy ETF

Scott Mather, managing director and head of global portfolio management at Pimco.

The California-based investment giant concludes that rising debt levels, limited fiscal flexibility and easy monetary policy in the US may weigh on the dollar for years.

Based on this premise, the new Pimco ETF is a portfolio of currencies and local currency bonds actively managed to help investors diversify out of the dollar and preserve their purchasing power.

The fund will invest at least 80% of its assets in currencies of, or fixed income instruments denominated in the currencies of, foreign (non-US) countries. Instruments may include short-term bonds, money market securities and currency forwards backed by high-quality, low duration securities.

Pimco will select the fund’s country and currency composition based on its evaluation of relative interest rates, inflation rates, exchange rates, monetary and fiscal policies, trade and current account balances, legal and political developments and other specific factors it believes to be relevant.

The fund may invest in emerging market countries and will normally limit its exposure to a single non-US currency to 20% of its total assets. The fund may invest in both investment-grade securities and high-yield securities (so-called junk bonds) rated Ba or higher by Moody’s or equivalently rated by Standard & Poor’s or Fitch.

The average duration of the fund will vary based on Pimco’s forecast for interest rates, though will typically vary from zero to three years. Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates. The longer a security’s duration, the more sensitive it will be to changes in interest rates.

The fund will be jointly managed by Scott Mather, managing director and head of global portfolio management; Vineer Bhansali, managing director and head of quantitative investment portfolios; and Thomas Kressin, senior vice president and head of European foreign exchange.

“The ongoing transition away from the dollar as the pre-eminent global reserve currency is continuing and many competing currencies increasingly offer better yields and long-term credit dynamics,” said Mr Mather. “FORX is a purer way to gain foreign currency exposure and also avoids the unwanted exposures that can come with holding indirect currency plays such as equities or commodities.”

This latest fund continues the expansion of Pimco’s range of actively managed ETFs, which combine a traditional active investment process with the tradability and versatility of the ETF vehicle, providing investors with intraday pricing and daily portfolio disclosure.

The fund comes with net total annual fund operating expenses of 0.65%.

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