Although actively managing Treasuries has always proven difficult, PIMCO is making the case for actively managed TIPS funds, The Wall Street Journal reports.
In a recent research report, PIMCO says TIPS, which comprise just $532 billion, or 8% of the $6.6 trillion Treasury market, behave differently than other Treasuries. The fund giant, which oversees $840 billion in assets under management, may have released the report since the iShares Barclays TIPS ETF has attracted $5.9 billion in sales this year alone.
Meanwhile, PIMCO has filed to launch its own TIPS ETFs.
PIMCO argues that because traditional and TIPS indexes adjust their daily value according to prices at the end of the day’s close, other investors can come in to buy the stocks, which can drive up prices. In addition, PIMCO argues that with TIPS auctions scheduled for only eight times a year, active investors can take advantage of supply and demand.
Surprisingly, Vanguard, known for its passive index funds, also offers an active TIPS fund, which the firm’s head of the taxable bond group, Kenneth Volpert, calls “a better way to go.”
But Barclays counters that passively managed ETFs, with their lower costs, are a better choice. Matt Tucker, head of U.S. fixed income strategy at Barclays, said ETF trading costs are rolled into the bid-and-ask spread and actually have more flexibility to buy and sell stocks than people think.
ETF managers can see market anomalies that are cost investors money and adjust for them, Tucker said.