Industry Updates

PIMCO proposes non-ETF share class optionality for bond ETFs

The asset manager could adopt an ‘inverse-Vanguard’ share class model in the future

Theo Andrew


PIMCO is planning to introduce the ability to implement non-ETF share classes on its range of bond ETFs.

Any changes would be subject to shareholder approval with the annual general meeting (AGM) set to take place in September.

According to the notes of its latest AGM circular, the group said it was proposing to update its prospectus to provide the “flexibility to issue both ETF participating share classes and non-ETF participating share classes for the funds should it be deemed appropriate in the future”.

The so-called ‘inverse-Vanguard’ model will allow the bond giant to create non-ETF share classes across nine fixed income ETFs.

Should PIMCO decide to implement new share classes it would be the opposite move to HSBC Asset Management, which announced it would be creating ETF share classes on four global bond index funds in April.

The move catapulted the asset manager to a top 10 ETF bond issuer with over $26bn assets under management, allowing it to add scale to its existing ETF product range due to the quirk of the ETF naming convention.

PIMCO said any move to create the non-ETF share classes would require further approval from the company directors and would also be subject to regulatory approval by the Central Bank of Ireland (CBI).

Issuers have been able to create ETF and non-ETF share classes under CBI rules since 2017, however, HSBC AM was the first to do so.

PIMCO did not disclose the reason behind the changes.

According to Sergey Dolomanov, asset managers have been reluctant to create non-ETF share classes in the past due to potentially compromising the favourable tax treatment of existing ETFs investing in the US, however, this only affects equity ETFs investing in US stocks.

“ETF managers are likely cognisant of a degree of uncertainty across the industry around the interpretation of the US-Ireland double taxation treaty, which only extends its benefits where the principal share class of the issuer is substantially and regularly trading on a stock exchange,” he said.

“Adding an unlisted share class to an existing ETF could therefore potentially introduce an element of uncertainty at fund or even umbrella level for any ETFs investing in US equities.”

So far, no other ETF issuers have followed HSBC AM’s lead in creating ETF share classes for its mutual funds with many waiting to see what impact the move will have.

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