A sound investment process and strong management team underpin PIMCO 0-5 Year High Yield Corp Bd ETF's Morningstar Medalist Rating of Gold. The portfolio maintains a sizable cost advantage over competitors, priced within the least expensive fee quintile among peers.  

 The strategy's effective investment philosophy supports a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an overweight in B rated bonds and debt with one- to three-year maturities compared with category peers. The strategy’s management team earns an Above Average People Pillar rating. The strategy's parent organization earns the firm an Above Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

PIMCO 0-5 Year High Yield Corp Bd ETF earns a High Process Pillar rating. Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. The leading factor in the rating is that this fund tracks an index. Historical data, such as Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. Noteworthy risk-adjusted performance also strengthens the process. This can be seen in the fund's 10-year alpha calculated relative to the category average, which suggests that the process was successful over that period. 

The investment strategy as stated in the fund's prospectus is: 

The investment seeks to provide total return that closely corresponds, before fees and expenses, and to the total return of the ICE BofA 0-5 Year U.S. High Yield Constrained Index.  The fund invests under normal circumstances at least 80% of its total assets (exclusive of collateral held from securities lending) in the component securities of the ICE BofA 0-5 Year U.S. High Yield Constrained Index. The underlying index is an unmanaged index comprised of U.S. dollar denominated below investment grade corporate debt securities publicly issued in the U.S. domestic market with remaining maturities of less than 5 years.  

 This strategy has a 6.5% 12-month yield, higher than its average peer's 6.4%. In addition, it has a 7.1% 30-day SEC yield (a measure similar to yield-to-maturity). Typically, higher yields come at the cost of higher credit risk. But that isn't always the case. Over the past 12 months, the average yield of the fund has been higher than the average yield of its Morningstar Category peers. The portfolio's average surveyed credit quality is on par with peers, with both the fund and the average being rated B. In terms of long-term interest-rate risk, this strategy is on par with peers. The longer a strategy's duration, the more sensitive it is to shifts in interest rates. This fund, with a 2.1-year duration, is expected to gain 2.1% of its net asset value if interest rates drop by 1 percentage point, and vice versa.

High

Process

PIMCO 0-5 Year High Yield Corp Bd ETF's strong team drives the strategy's Above Average People Pillar rating. There are four managers listed on the fund: David Forgash, Matthew Dorsten, Tanuj Dora, Jason Vivas. Though they do not manage other products together, managers may manage them individually.  

 Note: This People Pillar rating is indirectly assigned by an analyst. Morningstar analysts evaluate the People Pillar for passive products at the brand level and may also differentiate by asset class. There is at least one other passive strategy at the firm that is covered by a Morningstar analyst, so the People Pillar rating of the fund is inherited from the rating that the Morningstar analyst assigned to investment vehicles under the same brand name.

Above Average

People

Some concerns notwithstanding, Pimco's massive resources--both capital and human--and its laser ‎focus on excellence merit an Above Average Parent rating.‎
True, Pimco could be better on pricing. Shareholders, particularly in Europe, haven't enjoyed the ‎economies of scale that they could given Pimco's massive asset base. The firm, however, believes its ‎pricing is fair based on what it consistently delivers for investors, and it's hard to argue that's not the ‎case.‎
Pimco has generally enjoyed great success with its intense working culture, even if departures are a ‎byproduct of that intensity and can sometimes dim the near-term outlook on strategies. Yet, more ‎often than not, Pimco draws on its legion of skilled people and positions the next generation to ‎thrive.
CIO Dan Ivascyn and CEO Manny Roman ‎represent that next generation and have built on the organizational strengths they inherited. An experienced and critical-thinking investor, ‎Ivascyn has sought to curate an elite staff and capable investment culture since he assumed his ‎current role in 2014 and since Roman joined him in 2016. They have significantly grown the firm's pool ‎of investment professionals and supported them by spending massively on technology and ‎technologists to spur persistent outperformance while keeping risk in check. There may be a few others in Pimco's league, but very few.‎

Parent

PIMCO 0-5 Year High Yield Corporate Bond Index ETF

HYS aims to capture exposure to the short maturity segment of the high-yield corporate bond sector.

A reader asked for my thoughts on HYS, a short-term high-yield corporate bond index ETF. HYS provides investors with a good, growing 6.0% dividend yield. It is also quite expensive, with a 0.55% expense ratio. An overview of the fund, and its advantages and disadvantages relative to peers, follows.

HYS: Expensive Short-Term High-Yield Corporate Bond ETF, Few Reasons To Buy

PIMCO 0-5 Year High Yield Corporate Bond Index ETF offers exposure to short-term high-yield corporate bonds, with a 30-day SEC yield of about 7.7%. HYS is considered extremely risky due to its holdings in junk bonds and over 22% of not rated bonds. The ETF is not well-positioned to ride out a potential recession due to its high risk and short-term focus.

HYS: The Junkiest Of Junk Bond ETFs

iShares 0-5 Year High Yield Corporate Bond ETF

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