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PIMCO Makes Changes to BOND

Posted by Mike McLaughlin on Mar 13, 2017, in Thoughts , tagged with , , , ,

Last week PIMCO announced changes (PDF) to its flagship Total Return active ETF, BOND. The gist: different investment focus to meet changing investor needs, new management team, same ticker.

I had a quick comment in the Ignites story (subscription required) on the change in which another observer stated that the appropriate move for PIMCO in this case is to launch another product, not tweak BOND. I find the move interesting enough that I thought to cover a few more things. So, three points each on two topics:

What’s Important About the Context Surrounding the Change?

  1. BOND is roughly $2 billion in assets. Not to minimize those assets, but they’re small relative to the whole of the Total Return strategy (75B+ in the mutual fund alone) and the firm’s $1.5 trillion in AUM.
  2. In general, active ETFs have not taken off as some have hoped. It’s difficult to project that PIMCO’s changes to BOND put a significant short or mid-term influx of assets at risk.
  3. Positioning the move as being grounded in the changing needs of investors is (a) appealing given the nature of today’s bond market, and (b) credible given that PIMCO is altering a product that has performed well, not poorly.

So Why Might This be Worth Doing?

  1. The Total Return strategy has been on the defensive since the fallout from Bill Gross’s departure. At least for the ETF this move enables PIMCO to focus on client needs and the new (and strong) team as part of a more positive conversation.
  2. Transitioning an existing product avoids adding another active ETF into an already-crowded ETF market and one that (again) has not been overly conducive to active funds.
  3. The scale of the assets involved makes this a potentially-appealing learning exercise from a strategic standpoint. PIMCO can mine the implications of pivoting existing ETF offerings, recasting the messaging for Total Return, and the like. (I realize this is far-fetched but the move has me thinking about adopting the regular reinvention strategy of Chicago’s famous Next restaurant for an ETF.)

There are so many nuances to consider. Even the fact that the ticker symbol is unchanged has implications. After all, if people know only one thing about active ETFs, fixed income ETFs, and PIMCO ETFs, the BOND ticker is probably it. Will the ticker being the same undermine efforts to communicate the changes?

It will be interesting and fun to see how this ultimately plays out.

What Happens When Big Ideas are Worth Less?

Posted by Mike McLaughlin on Feb 20, 2017, in Thoughts , tagged with , ,

Consider a hypothetical industry:

  1. Competition is intensifying.
  2. Organizations are investing heavily in analytical capabilities, both in terms of people and tools, in an attempt to find a new strategy that will give them an edge.
  3. Unfortunately for the innovators, new ideas and strategies are often quickly digested and leveraged by numerous competitors.

I happen to be talking about baseball, an industry so competitive these days that someone was just sent to prison for 4 years for hacking another team’s data. (Yes, with Spring Training starting I have a little too much baseball on my mind).

But the competitive realities in baseball – and their implications – parallel what is happening in asset management. Competition is rising. Firms continue to search for new business and distribution strategies in part by utilizing Big Data. And the window for firms to capitalize on new ideas is increasingly short.

Smart beta provides a good example. Though the ideas have been around for a long time, for the most part firms did not perceive smart beta as a major opportunity until the last few years. Then, rapidly, there was a pivot. In short order the idea that smart beta is not just a niche but a potential core strategic effort for many firms took hold. Today it’s to the point where there are 800+ smart beta ETFs and mild concerns about it being a “market fad run amok.”

Smart Beta Assets

What does this mean for firms? What if your next new idea can be understood and cloned/tweaked by the competition almost immediately?

I think the first obvious step is simple acceptance that this will be reality moving forward. In the parallel baseball universe one writer called this “the devaluation of new ideas.” Firms need to accept that their big ideas are going to get out there faster than they’d like.

The second step is more critical. It involves firms placing a greater emphasis on execution over strategy. Coming up with the idea first matters less; implementing the idea as creatively, uniquely, and efficiently as possible becomes paramount.

While this is somewhat of a broad, abstract concept, I find the notion interesting in light of the varied effort we see invested in strategy definition and innovation across our clients. A shift in an organization or team’s fundamental mindset can have an important impact on approaches to everything from product development to distribution tactics.

Reflation

The Positioning Impact of Launching ETFs

Posted by Mike McLaughlin on Feb 03, 2016, in Thoughts , tagged with , , ,

Last week OppenheimerFunds rebranded the recently-purchased RevenueShares ETF lineup as the Oppenheimer Factor Weighted ETFs. Given that the firm is new to the smart beta ETF space, a simple question crossed my mind: how do they now introduce themselves as a firm?

Traditional (for lack of a better word) actively-managed, mutual fund-oriented firms face a number of important strategic marketing and positioning questions when entering the ETF space. But among the most fundamental is figuring out how to adjust the messaging of who they are and what they do.

In many cases there is an established, legacy messaging platform that emphasizes elements – active management, specific investment philosophy or process tenets – that fail to mesh seamlessly with the expanded product line. As a result the new ETFs appear to be more of an opportunistic “bolt-on” than something grounded in the core beliefs of the firm.

OppenheimerFunds’ illustrates one approach to trying to overcome this issue, namely via a tagline (The Right Way to Invest) and four key principles that focus primarily on themes that are vehicle and strategy agnostic. But there are several firms whose stories fail to match up with their newly-expanded offerings. They, and the anticipated entrants into the ETF universe, will need to reconsider how they primarily want to define themselves and communicate their capabilities to the market.

[ image courtesy of Tony Hall ]