Monty Racusin
PIMCO Active Bond ETF (New York Stock Exchange: Bond) invests across a diversified portfolio of investment grade debt securities to generate current income and long-term capital appreciation.
Compared to typical indexed bond funds, the appeal of PIMCO’s BOND exchange-traded fund (“ETF”) is superior. An actively managed approach to the strategy provides the portfolio manager with some flexibility to adjust market exposures and potentially generate excess returns.
In fact, with a proven track record since 2012, BOND has outperformed benchmark ETFs like the Vanguard Total Bond Market ETF (BND) or the iShares Core US Aggregate Bond ETF (AGG) historically with a similar risk profile. Over the past year, BOND has returned 4.2% compared to 3% from BND and AGG.
Could a BOND ETF be a good addition to your portfolio? Here’s what you need to know.
What is a Bond ETF?
The bond The ETF is offered by Pimco Investment Management, a globally recognized institution with a strong track record of experience in fixed income. PIMCO describes its work Investment philosophy It combines a top-down approach taking into account macro forces expected to occur over the next several years along with a bottom-up strategy that uses fundamentals in security selection.
Source: BIMCO 
BOND focuses on high-quality US dollar-denominated bonds with medium-term maturity. Its investment universe includes not only US Treasuries, but also securitized instruments such as mortgage-backed securities (“MBS”), asset-backed securities (“ABS”), and collateralized loan obligations (“CLO”), as well as investment-grade Corporate credit.
Source: BIMCO 
BOND vs. BND and AGG
Without trying to reinvent the wheel, a Bond strategy can be described as having a balanced risk profile within fixed income, meaning there is some credit and interest rate risk, but the overall exposure is intended to generally reflect high-level themes in the bond market.
This dynamic is clearly evident as the ETF uses the “Bloomberg US Aggregate Bond Index” as a benchmark for its performance, deviating from its precise composition with adjustments that the portfolio manager believes are appropriate in the context of the current market environment.
In this case, the same Bloomberg index is tracked by two of the largest bond ETFs by assets: Vanguard’s BND and iShares’ AGG. By this measure, we can think of BOND as a similar or alternative option compared to these more widely held funds.
The first metric that stands out is that BOND, with $4.3 billion in assets under management, is much smaller than BND with $312 billion in assets or AGG with $109 billion. At the same time, its volume is large enough that trading liquidity is not a problem.
With similar credit risk exposure based on the same benchmark, all three funds have an average or effective duration of approximately 6.0 years, reflecting the medium-term maturity profile of the holdings.
BOND, on the other hand, charges a materially higher expense ratio of 0.58%, compared to BND and AGG of just 0.03% as low-cost funds. However, this premium can be justified given the active management and history of generating a higher return.
| PIMCO Active Bond Exchange Traded Fund (BOND) | Vanguard Aggregate Bond Market Fund (BND) | iShares Core US Aggregate Bond ETF (AGG) | |
| Properties under management supervision | $4.3 billion | $311.7 billion | $108.9 billion |
| Expense ratio | 0.58% | 0.03% | 0.03% |
| Exposure to treasury securities | 42% | 47% | 43% |
| Average/actual duration | 5.6 years | 6.0 years | 6.0 years |
| Yield Sec | 5.4% | 4.7% | 4.7% |
| distribute profits | monthly | monthly | monthly |
| 1 year total return | 4.2% | 3.0% | 2.9% |
| 5YR total return | 1.0% | 0.3% | 0.1% |
| Total return 10 years | 19.4% | 14.9% | 14.7% |
Over the past 10 years, BOND has returned 19.4% compared to the 15% return of BND and AGG. The outperformance has become greater since the fund’s inception in 2012. This spread is likely attributable to BOND’s ability to deviate from standard risk exposure by taking on more credit or interest rate risk on margin during a given period.
This flexibility in an actively managed strategy may also explain the higher 30-day SEC annualized yield, listed at 5.4% for BOND compared to 4.7% for BND and AGG.
The strategy appears to have benefited from the strong bond bull market of the past decade amid the low interest rate environment, while its ability to significantly outperform has been limited in recent years amid historic volatility since 2022.
What’s next for Bond?
The uptrend for bonds starts here with a path for interest rates to stabilize or even decline as a potential tailwind for the bond market in the future. There is some uncertainty about how inflationary trends will develop over the next few months, but there are good signs that the Fed will have room to start cutting interest rates over the next year as macro conditions return to normal.
We believe this backdrop should be positive for fixed income as an asset class which the PIMCO Active Bond ETF will be well positioned to benefit from.
The caveat here is that there are still risks to the bond market that could lead to renewed volatility and a loss in value for the BOND ETF. A scenario in which inflation remains high or accelerates again either this year or in 2025 could force the Fed to consider a new round of interest rate hikes.
The yield curve can also steepen as long-term interest rates rise until short-term interest rates trend lower. Market concerns related to fundamental issues such as the US government’s persistent budget deficit and rising national debt have the potential to negatively impact bonds.
Final thoughts
Overall, the BOND ETF has proven its ability to successfully navigate various market environments and we expect this to continue.
Despite the higher expense ratio compared to low-cost bond ETFs, BOND’s broader dividend yield and potential for additional excess returns may be worth it. We believe this is a high-quality bond fund that most investors can consider as a core long-term portfolio.
