U.S.-based Pimco, home of famed bond manager Bill Gross, is making a foray into Canada with eight lower-fee mutual funds that will provide some stiff competition for domestic rivals.
The bond fund giant is entering the Canadian retail fund market now because "we think there is a lot of interest in Pimco and its ability to provide [interesting]macro-economic perspectives in this market," Stuart Graham, president of Pimco's Canadian institutional arm, said Wednesday.
Mr. Gross, whose views on the economy are widely quoted, believes that investors should face up to a "new normal" world of weak growth and low returns on stocks and bonds. He has also been vocal about Canada being a better place for bond returns than in the United States.
The Globe and Mail reported in September that Pacific Investment Management Co. LLC was planning an expansion into Canada in time for the registered retirement investment plan (RRSP) selling season.
Pimco, which oversees more than $1-trillion (U.S.) in assets worldwide, has filed preliminary prospectuses for four Canadian fixed-income offerings that will invest respectively in short-term, long-term, total return and real return bonds. It will also launch four products that will invest in non-Canadian assets, including two bond funds, a global balanced fund and a global stock fund to be hedged back to Canadian dollars.
Dan Hallett, a fund analyst and director of asset management at HighView Financial Group, said that bond funds in Canada are generally "too expensive and they [Pimco]are coming in with a line of products backed by good management at competitive prices."
The Pimco Canadian bond funds sold through advisers will end up charging a fee of about 1.4 per cent, including the harmonized sales tax (HST), which compares with 2 per cent for many similar offerings in Canada, Mr. Hallett said.
"Its fees are below average, but are certainly not the lowest," he said. "But given where yields stand today, it is just not worth paying close to 2 per cent for a broad-based Canadian bond fund."
Pimco's offerings are likely to be on sale in Canada within the next two months and will also include Pimco Pathfinder, a global equity fund it has been selling in the U.S. after wooing managers Anne Gudefin and Charles Lahr away from U.S.-based Franklin Resources Inc., where they ran the Mutual Discovery Fund.
"Pathfinder will provide competition for all global funds, but clearly it is going to be directed at the Mutual Discovery Fund" sold by Franklin's Canadian unit, Mr. Hallett said. "Pimco is really competing against Franklin Templeton on both sides of the border."
Scott Chan, a fund company analyst with Canaccord Genuity, suggested the presence of Pimco will keep Canadian bond managers on their toes because of Mr. Gross's high profile and history of strong performance in the fixed-income world.
But many financial advisers will still want to see a track record on the new funds for at least a year before pitching them to clients, Mr. Chan said. "If the funds do well within a year and get that performance record, longer term, Pimco could be a threat to the fixed-income industry in Canada."