Pimco files for its first mutual fund-to-ETF conversion

Pimco has proposed its first mutual fund-to-ETF conversion, according to a regulatory filing.

At a meeting held last month, the firm proposed to its board of trustees for Pimco Funds that it consider converting its $141mn Mortgage-Backed Securities Fund from a mutual fund into an ETF, the filing states.

The fund recorded $19mn in net outflows for the 12 months ended January 31 and more than $1mn in net outflows in January alone, according to data from Morningstar Direct.

Pimco said in the filing that the conversion would benefit the fund’s shareholders, pointing to a potential reduction in costs, including no 12b-1 fees, sales charges and “other potential benefits”.

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Currently, the fund charges between 112 and 227 basis points in annual expenses, depending on the share class, according to its prospectus.

The prospective ETF would be managed in a substantially similar manner to the mutual fund, and the conversion would be slated for completion on or before September 20, Pimco said in the filing,

To receive shares of the proposed ETF, clients would need to have a brokerage account upon the date of the mutual fund’s potential conversion, Pimco said in the filing.

Shareholders ineligible to receive shares after the conversion would be given the cash value of their shares as of that date, the filing states.

Assets invested in the fund via retirement accounts such as defined contribution plans would be “generally expected” to be transferred into Pimco’s Government Money Market Fund, depending on the terms of plans or retirement account agreements, Pimco said in the filing.

If the conversion is approved as proposed, some share classes of the strategy would be closed to new investors as of June 3, and new accounts for the fund would not be able to be opened through Pimco, the filing states.

“We have a variety of mutual funds that offer mortgage exposure, but our ETF suite does not include a mortgage-focused strategy. While some fixed income categories are still in their nascent state of adapting ETFs, the mortgage category is relatively more developed and has seen strong category flows,” Pimco said.

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Pimco’s suite of mutual funds, which had $356.3bn in assets under management as of January 31, netted $2.1bn in flows for the year ended the same date, according to Morningstar Direct.

The firm’s ETF line-up, meanwhile, recorded $3.9bn in inflows during the same period and managed $24.4bn in total assets as of January 31, according to Morningstar Direct.

Some 44 per cent of asset managers said they expect an uptick in mutual fund-to-ETF conversions over the next year, according to a recent report from BNY Mellon.

There have been 73 US mutual fund-to-ETF conversions, according to Morningstar Direct data.

Fidelity leads the pack of managers with the most conversions at 12, followed by JPMorgan with eight and Dimensional Fund Advisors with seven, Morningstar Direct data shows.

*Ignites is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at ignites.com.