PIMCO, the fixed income investment management giant, has partnered with the ETF providerSource to introduce and distribute fixed income ETFs in the European market.

The two firms are creating a range of products, called PIMCO Source Fixed Income ETFs, which will provide fixed income exposure for European investors. They will be structured as UCITS exchange traded funds and there will be the option of investing in a range of maturities, with the first products due to launch early next year. Further details on the exact products will be released closer to the time.

The world of fixed income ETFs has grown quickly over the past few years, and there are now a number of such products around. Overall, the European ETF market has around $250 billion in assets under management, with around 25 per cent of these invested in bond funds, according to PIMCO and Source. And while these funds experienced a growth spike in 2009, they have been growing roughly in line with equity ETFs, Michael Lytle, managing director of Source, told WealthBriefing. The US ETF market is much bigger, at around three times the size.

However, across the investment universe, the proportion of fixed income securities versus equities that investors hold is much higher than in the ETF world, says Lytle, and this is part of the reason the firm sees plenty of opportunities still in this market.

Also, on the products available in the European market, there is indexing exposure but the bond ETFs by no means cover the full range of possibilities that are covered in the mutual fund space, said Ted Hood, chief executive of Source.

“When we evaluated the ETF market it was very clear there was room for improvement,” said Hood, particularly in terms of the actual content of the products in this space.

One criticism to have been levelled at bond ETFs is that they can be mispriced because they don’t always reflect the published value of their underlying holdings. But ETFs can bring new levels of transparency and access to these assets – traditionally traded over the counter – to investors, said Don Suskind, head of ETF product management at PIMCO. They also create intra-day dealing and pricing, and bring expertise to a wider market, he added.