ETF Expert: Do We Really Need More Treasury Bond ETF Trackers?

Jim Wiandt  is excited. Jim thinks that the new Pimco 1-3 Year Treasury Bond Fund (TUZ) should serve as a wake-up call for ETF investors. His reasoning? Its annual cost of ownership is an infinitesimal 9 basis points (.09).

I, however, remain less than impressed. The Pimco 1-3 Year Treasury Bond Fund (TUZ) traded 60k shares today, 6/3/09. This low volume makes it difficult for some to get the price execution that they might require. It follows that the hidden trading cost is certainly larger than the 6 additional basis points charged by the iShares 1-3 Year Treasury Bond Fund (SHY) at 0.15.

Moreover, SHY averages 1,200,000 daily shares. (Note: If one really wants to get down to the nitty gritty, the price point of $50 for Pimcos TUZ versus iShares SHY at $83 is more like 2,000,000 shares trading to 60k). The iShares 1-3 Year Treasury Bond Fund (SHY) is, more than likely, still cheaper.

Dont get me wrong on Pimco. I love the fact that the company is entering the ETF arena. But lets get real.

Wiandt himself acknowledges that while the fund is priced at 9 bps now, there is a 13 bps waiver up to 22 bps. Gee, do you think theres an element of gamesmanship being played? Do you think Pimco wanted to get a whole lot of press about being the least expensive ETF fund alternative, even though theyll almost assuredly need to raise the annual expense upon garnering enough market share?

Pimco also intends to launch the Pimco 3-7 Year U.S. Treasury Index Fund, the Pimco 7-15 Year U.S. Treasury Index Fund, and the Pimco 15+Year U.S. Treasury Index Fund. The way that I see it, Pimco has far too much talent and far too much opportunity in other bond areas; they do not need to mimic State Street SPDR treasury vehicles or iShares Barclays treasury vehicles.

Even if Pimco is likely to make some headway into treasury bond tracking, did the investing public really need this? What about ETFs that give us better exposure to non-treasury foreign bonds, convertible securities, global bonds and even multi-sector bonds?

At least Pimco has announced inflation-protected funds of varying maturities: Pimco Short Maturity U.S. TIPS Index Fund and Pimco Long Maturity U.S. TIPS Index Fund. Since the current inflation-protected line-up in the U.S. is limited to the entre classification, SPDR Barclay TIPS (IPE) and iShares TIPS  (TIP) are primarily intermediate bond funds.

TIPS of shorter and longer maturities? Now that, James is sometihng to get truly excited about. (Read more about bond ETFs in the Ultimate Bond ETF Portfolio  in 2009.

If youd like to learn more about ETF investing then tune into In the Money With Gary Gordon. You can listen to the show live or via podcast or on your iPod at this link .

Disclosure Statement: ETF Expert  is a web log (blog) that makes the world of ETFs easier to understand. Pacific Park Financial, Inc.. a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

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