PIMCO’s MINT: Well-Run, But Easily Topped With Low-Cost Competitors – PIMCO Enhanced Short Maturity Active ETF (NYSEARCA:MINT)

Investment Thesis

PIMCO Enhanced Short Maturity Active ETF (MINT), while a well-managed and low-cost way to maximize income and preserve capital, is nevertheless inferior to the benefits achieved from investing in a similar low-cost, short-duration, passively-managed bond index fund. In this ETF review, we will find if the evidence supports my assertion about this fund.

Fund Background

From the fund’s website, MINT is an ETF that “seeks maximum current income, consistent with preservation of capital and daily liquidity.” The website lists six potential advantages of MINT:

1. Increased return potential
2. Capital preservation focus
3. Protection against rising rates
4. Liquidity for non-immediate needs
5. Complements traditional bond allocations
6. Low volatility relative to riskier assets

To begin with, this introductory information indicates to me that MINT is an actively-managed bond fund consisting of holdings with short durations (and possibly a sprinkling of inflation-protected bonds, based on advantage #3 above). Let’s take a look at the portfolio before examining MINT’s performance and distributions.

Portfolio

Clicking on the “Composition” tab on the fund’s website reveals that 95% of MINT’s 877 holdings are ultra-low duration bonds:

There is also a smaller 5% allocation to bonds with a 1-3 year duration. In the pie graph directly below this one we see that MINT’s holdings are primarily investment grade (61.09%) and securitized (21.22%):

The majority (59.53%) of these bonds are based in the U.S., with smaller allocations to the United Kingdom (9.02%), Japan (8.59%), and Germany (6.09%). So far, MINT’s holdings appear to be exactly as stated and give us a basis from which to compare it to similar bond funds. Next, we take a quick look at performance, distributions, and expense ratio.

Performance, Distributions, & Other Details

Established 11/16/2009, MINT currently reports an expense ratio of 0.42%. As shown on the “Performance & Risk” tab, the fund has either matched or bested its benchmark’s performance in all time periods since its inception; a noteworthy performance!

MINT pays distributions monthly, as shown below:

Based on the twelve most recent distributions (totaling $2.635/share) and MINT’s current market price ($101.48/share as of 9:10 am on 05/06/2019), MINT’s dividend yield is 2.6%.

Before we compare MINT to some of its peers, as I always do when evaluating equities, let’s take a look at the most recent financial statements to determine MINT’s standing on a fundamental basis.

Financial Statement Analysis

MINT’s most recent financial report is their semiannual report date 12/31/2018. (Please note, if you currently hold this fund or are considering adding it to your portfolio, I would also read its most recent annual report.) Major sections of the report and any noteworthy items are specified below.

Financial Highlights (p. 22)

This schedule shows a history of MINT’s NAV price and the major factors affecting it. The NAV has seen steady growth over the past five years and off a bit from the 2018 high of $101.74. Notably, all of MINT’s distributions have come from net investment income, which is a signal of financial strength.

Statements of Assets and Liabilities (p. 25)

MINT shows net assets of $12.194 billion, consisting almost entirely of the fund’s investments, less a minuscule $33 million of liabilities.

Statements of Operations (p. 27)

This profit and loss statement shows $138 million in net investment income, less about $20 million in expenses mostly stemming from management fees. MINT is quite effectively managed, retaining about $0.87 for every dollar of net investment income. However, over this time period, MINT did experience a $49 million decrease in the value of its investments, which negatively affected net assets.

Schedule of Investments (p. 71-78)

Finally, a quick review of MINT’s investments schedule shows that its holdings are as promised, consisting mostly of corporate, government, and municipal bonds.

With the financial statement review now complete, let’s return to the core thesis of this review: Is MINT the best ultra-short duration bond ETF out there?

ETF and Mutual Fund Comparisons

To answer this question, I began by consulting the comprehensive ETF screener at ETFdb.com. We can begin by selecting the appropriate filters on the left:

• Asset Class: Bonds
• Duration: Ultra Short-Term and Short-Term
• Net Assets: Greater than $1 billion
• Dividend Yield: Greater than or equal to 2.6% (MINT’s current yield)

Note: ETFdb.com erroneously classifies MINT as an all-term bond ETF, so it does not show up on this screener.

This screener provides us with the seven ETFs below (including MINT):

In the final column, I calculated each fund’s net dividend yield (Yield – Expense%) and then subtracted MINT’s net dividend yield (2.18%) from that figure. As you can see, Invesco BulletShares 2020 High Yield Corporate Bond ETF (BSJK) blows MINT’s yield out of the water, while most of the other funds surpass MINT’s yield by 0.31 – 0.46%. To see if any of these bond ETFs are acceptable alternatives, let’s take a quick look at their holdings (clicking on each ETF’s name links directly to the fund’s website):

Because none of these ETFs contained portfolios similar to MINT’s, I had to continue searching. The iShares bond ETFs seemed to be the most reasonable place to continue looking, following by the perennial low-cost champion: Vanguard.

Using the ETF screener at iShares.com, I was able to locate two ultra short-term bond funds: iShares Short Maturity Bond ETF (NEAR) and iShares Ultra Short-Term Bond ETF (ICSH). On Vanguard’s website, two of the ETFs that I identified had a yield similar to MINT, however, they both contained either bonds with durations over one year or below-investment-grade ratings.

Here is a quick summary of the two iShares ETFs:

NEAR

• Inception Date: Sep 25, 2013
• Number of Holdings: 406
• Net Assets: $6,193,887,102
• Expense Ratio: 0.25%
• 12m Trailing Yield: 2.53%
• Net dividend yield: 2.28% (0.1% higher than MINT)

ICSH

• Inception Date: Dec 11, 2013
• Number of Holdings: 218
• Net Assets: $1,322,746,968
• Expense Ratio: 0.08%
• 12m Trailing Yield: 2.53%
• Net dividend yield: 2.45% (0.27% higher than MINT)

While these two funds are actively managed, they still manage to post lower expense ratios and in ICSH’s case, it tops MINT’s net dividend yield by 0.27%!

Summary

The preceding analysis proves that MINT does an excellent job in stating its achieved purpose of maximizing yield in the ultra short-term bond arena while also minimizing risk and preserving capital. However, I have also proven that two iShares funds, NEAR and ICSH, both beat MINT’s yield and do so at a much lower expense ratio. While these two funds are actively managed, they still perform better than MINT and at a lower cost. In the end, I was wrong about one thing: these two funds are not passively-managed index funds, yet they are still able to manage their portfolios in an efficient, low-cost manner.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.