PIMCO's Jerome Schneider, who presented "How Green is Your Cash? The Next Frontier of ESG Investing" at this week's "Inside ETFs" conference, talked with CNBC's Bob Pisani afterwards (see the video here). When asked about bond ETF inflows, Schneider explains, "I think two things. Number one, a lot of the groundwork that we've laid within the fixed-income universe, specifically in ETFs, has begun to take notice. It's taken a little bit of time for people to recognize the fact that there is a value in the ballast that fixed-income provides. And the second is just simply the education that active ETFs especially in a late cycle environment allow for differentiation, allow for us to identify risk that we like and those that we don't like, and allows us to outperform benchmarks. So, as we get later in the cycle, people are going to be really focused on volatility management and one way to do that it fixed-income and active management." Schneider comments, "High-yield is one part of fixed-income, naturally, but what investors really want is, they're searching for income. We find that there is a balance between that income, total return and ultimately volatility management. It comes down to risk adjusted returns at the end of the day. So high-yield can be one component, it takes a lot of resources, it takes credit research, which we have at PIMCO with 65 credit analysts globally.... At the front end of the curve, and actually throughout our curve, we think credit risk, specifically corporate credit risk, has been something to under-appreciate, under-accentuate in your portfolio construction, really for the past two years. And, as a result we're starting to see differentiation actual bear fruit for the clients over the course of the next few earnings cycles." He adds, "Taking risk in this environment is a high conviction trade effectively. You have to believe that the economy is going to continue to evolve, probably something north of 2% GDP growth.... But we're finding that investors are looking for that more balanced approach. Realizing that the fruits of quantitative easing over the past 10 years, have begun to become more constrained. Meaning, volatility that was suppressed for the past 10 years is beginning to emerge, and we're sort of at that tail end. So financial advisors, RIAs, etc. are becoming more prudent in terms of how they're allocating risk, and with that becoming more diversified in terms of those allocations along the way." Schneider also says, "We're going to probably see low rates for longer. But at the same time you have various things that are going to emanate and create volatility within the marketplace. Things we focus on like the plumbing, the repo market fiasco that we had back in September, liquidity is going to be of paramount concern. There's geopolitics, obviously growth rates around the world ... we have the viruses going on now, there's going to be various inflammations of volatility. Ultimately when you say TINA, 'there is no alternative,' what we're finding is that that `TINA is actually higher allocations to defensive trades, higher allocations to cash. We've seen money market funds grow to about $3.5 trillion. So, that's really where people are trying to find that balance and de-risk effectively, a little bit.... At this current point in time, we are really focusing on the trajectory of the core funds that we have created over the past decade or so. We've had MINT. On top of that, we have a Low Duration ETF. We have a Core Bond ETF called BOND, and we launched our ESG ETF called EMNT. We think that those actually are offering good alternatives in access to that actively managed benchmark that you would actually need to achieve." (Note: PIMCO's Schneider will also be headlining our upcoming Crane's Bond Fund Symposium in Boston, March 23-24.)

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