PIMCO Active Bond ETF: A Bright Spot in Fixed-Income✨

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Hello, ETF UNO enthusiasts! Welcome to another exciting edition of our newsletter, where we explore the world of ETFs to help you build smarter and stronger portfolios. Today, we’re focusing on the PIMCO Active Bond ETF $BOND ( ▲ 0.29% ) . This fund brings the expertise of one of the most reputable names in fixed-income investing into the ETF space. We will guide you through the key features of BOND, providing insights tailored to your investment journey.

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What is BOND?

The PIMCO Active Bond ETF (ticker: BOND) is an actively managed fund launched in 2012, aimed at providing current income and long-term capital appreciation while managing risk. With over $5 billion in assets under management as of early 2025, BOND invests in a diversified portfolio of fixed-income instruments, offering investors a dynamic approach to navigating the bond market.

In the ETF world, the debate between active and passive management is lively. While passive ETFs aim to mirror an index’s performance, active ETFs like BOND seek to outperform their benchmarks by leveraging expert management and strategic flexibility. Studies have shown that active bond funds outperform their passive counterparts over the long term, particularly in dynamic or volatile markets.

Why does active management shine in bonds? Bonds are far from a “set it and forget it” asset class. Interest rate fluctuations, credit quality shifts, and macroeconomic changes create a landscape where skilled managers can add value. BOND’s managers employ strategies like credit analysis, yield curve positioning, and selective use of derivatives to capitalise on undervalued opportunities or mitigate risks. This agility can be a game-changer in a world where central banks adjust rates, and inflation remains a wildcard.

BOND's portfolio is a carefully curated mix of fixed-income securities:

• 🏦Investment-Grade Debt: About 80% of the assets are allocated to investment-grade debt, including U.S. Treasuries, corporate bonds, and mortgage-backed securities.

• 📈High-Yield Bonds: Up to 30% of the portfolio can be invested in high-yield (or "junk") bonds, which introduces additional risk in exchange for the potential of higher returns.

• 🛡️Derivatives Usage: The fund employs futures and swaps to enhance returns and manage risk.

• 🌐Diversification: The fund holdings include 1,651 securities, providing a high level of diversification.

• ⏳Portfolio Duration: The portfolio's average duration ranges from short-term (less than 1 year) to long-term (more than 20 years), balancing interest rate sensitivity with the income potential.

Investment Strategy📊

Incorporating BOND into an ETF portfolio requires a thoughtful approach. Here are three strategies to consider:

• 🏗️Core Bond Holding: BOND can be a core fixed-income allocation, providing stability and income to balance riskier assets like equities. For a balanced portfolio (e.g., 60% stocks, 40% bonds), allocate 20–30% to BOND alongside other bond ETFs like the Vanguard Total Bond Market ETF (BND) for broader diversification. This strategy suits investors seeking steady income with moderate growth.

• 🎯Tactical Allocation: Given BOND’s active management, ETF investors can use it tactically to capitalise on specific market conditions. For example, suppose you expect interest rates to rise. In that case, BOND’s managers can adjust the duration or shift to shorter-term bonds to minimise losses. Allocate 10–15% of your portfolio to BOND as a complement to passive bond ETFs, allowing PIMCO’s expertise to navigate choppy markets.

• 💰Income-Focused Portfolio: For retirees or income-seeking investors, BOND’s monthly dividend distributions (around 5% as of early 2025) make it a strong candidate for an income-focused portfolio—pair BOND with high-yield bond ETFs or dividend stock ETFs to enhance cash flow while maintaining diversification.

To implement these strategies, consider your overall asset allocation and rebalance periodically to maintain your target weights. BOND’s expense ratio is higher than passive bond ETFs, so weigh the cost against the potential for outperformance.

BOND at a glance

ETF Issuer: PIMCO

Inception: 2012-02-29

Asset Class: Fixed-Income

Underlying Index: it is an actively managed ETF

Geographical Focus: U.S.

Expense Ratio: 0.70% (as of last data point)

Dividend Yield: 5.10% (as of last data point)

Distribution Frequency: Monthly

Historical Performance

BOND’s historical performance reflects its ability to deliver competitive returns in a challenging bond market. Below is a snapshot of its annualised total returns (net of fees) as of March 31, 2025, compared to its benchmark, the Bloomberg U.S. Aggregate Bond Index, based on available data:

• 1-Year Return: BOND: 5.84% | Benchmark: 4.88%

• 3-Year Return: BOND: 1.05% | Benchmark: 0.52%

• 5-Year Return: BOND: 0.80% | Benchmark: -0.40%

• Since Inception: BOND: 2.83% | Benchmark: 1.79%

ETF Radar View

The radar chart below shows the general characteristics of the ETF:

Top 3 Reasons to Invest

1. Proven Outperformance: Thanks to PIMCO's expertise in active management, BOND has consistently outperformed its benchmark and many passive bond ETFs. For investors seeking alpha, BOND's track record is hard to ignore.

2. Diversification and Flexibility: BOND's broad portfolio spans investment-grade bonds, high-yield securities, and derivatives, offering diversification across sectors and maturities. Its active approach allows it to adapt to changing market conditions, making it a versatile addition to any portfolio.

3. Attractive Income: With a yield of approximately 5% and monthly distributions, BOND provides a reliable income stream for investors, particularly those in or near retirement. Its focus on current income aligns well with the needs of income-focused ETF investors.

Top 3 Reasons Not to Invest

1. Active Management Risk: Active management can lead to higher returns but also carries the risk of underperformance if strategies fail. In contrast, passive ETFs provide more predictable but lower returns. BOND's higher expense ratio than passive bond ETFs can erode returns over time, especially if active management underperforms in certain market conditions.

2. High Portfolio Turnover: BOND's high annual turnover indicates frequent trading, which can lead to higher transaction costs and potential tax inefficiencies. Investors in taxable accounts may face capital gains distributions, reducing after-tax returns.

3. Interest Rate Sensitivity: With an average duration of two to eight years, BOND is sensitive to interest rate changes. If rates rise sharply, the fund's value could decline, posing risks for investors with shorter time horizons or low-risk tolerance.

Unlocking Wealth with BOND🔓

The PIMCO Active Bond ETF is a great option for investors seeking income and diversification in fixed-income portfolios. With PIMCO's expertise and active management, it offers solid performance and attractive yields. The BOND ETF also provides easy access to professional bond management without selecting individual securities, making it a worthy consideration for those building a balanced portfolio or seeking steady income. Investors should consider the higher fees and risks associated with active management and interest rate sensitivity.

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DISCLAIMER: This article is for informational purposes only and should not be considered as investment advice. Always conduct your own research and consult with a financial advisor before making investment decisions.