Active ETFs for Liquidity Management and Capital Preservation

Transcription

1 STRATEGY SPOTLIGHT October 2016 Active ETFs for Liquidity Management and Capital Preservation AUTHORS As reform alters the landscape, investors look beyond money market funds. Jerome M. Schneider Managing Director Head of Short-Term Portfolio Management Natalie Zahradnik Executive Vice President ETF Strategist Investors and asset managers today are adapting to a paradigm shift in liquidity management. The advent of money market reform measures on 14 October, combined with the New Neutral reality of lower for longer interest rates, has made achieving attractive risk-adjusted income while preserving purchasing power top of mind for many investors. Here, Jerome Schneider, PIMCO s head of short-term portfolio management and Morningstar Fixed Income Manager of the Year for 2015, and PIMCO ETF strategist Natalie Zahradnik discuss what s at stake with the pending reform and why active shortterm exchange-traded funds (ETFs), like PIMCO s MINT and LDUR, may be an attractive alternative to money market funds. The deadline for implementing the new money market rules is 14 October. Can you give a synopsis of the reforms and their market implications? Schneider: The overarching aim of the reform is to prevent the types of risks we saw with the Reserve Primary Fund in 2008, which triggered mass redemptions and was eventually liquidated after being forced to lower its net asset value (NAV) below $1.00. To this end, the pending rules require prime money market managers to move from a stable NAV of $1.00 per share to a floating NAV. And to prevent runs on assets, they also allow prime fund managers to put up so-called gates liquidity fees or redemption suspensions if weekly liquid assets fall below certain thresholds. The move to a floating versus fixed NAV has caused assets in prime funds to plummet recently by over $1 trillion over the past year as investors move toward governmentonly funds (which aren t subject to the rule) or other options, including certificates of deposit (CDs). But these options may come with certain drawbacks, including limited liquidity or an inability to adequately protect investors purchasing power due to anemic net returns (which we believe will remain structurally suppressed over the secular horizon). So it s important for investors to carefully consider whether their cash management options are actually working to meet their goals.

2 2 October 2016 Strategy Spotlight What have you been seeing in the overall short-term and money market space leading up to these reforms? Schneider: The big story, of course, has been the massive outflows from traditional prime (credit) money market funds, with over $300 billion in redemptions over the past month alone. Much of this has been funneling into government-only funds, which are only partially subject to the new rules. But with nearly $300 billion still in institutional prime funds, the question remains whether the outflows are mostly behind us or will swell again following the implementation of the reforms. The ongoing shift (along with expectations of slow Fed rate hiking) has pushed short-term funding rates higher as lenders face decreased demand for short-term instruments: The London Interbank Offered Rate (Libor) has spiked to 0.87% currently from just 0.33% a year ago, and we don t expect Libor to recalibrate back to levels seen earlier in the year anytime soon. So what we see is lenders, investors and asset managers adjusting to a true structural change in funding rates one that will benefit those investors willing to evaluate and embrace this new paradigm. On the other side, we believe those who don t adapt and who keep overallocating to government money market funds will continue to suffer. Paltry net returns (near 0%) will only look worse when the Federal Reserve chooses to move rates higher. And inflation continues to edge upward. This is notable because over most of the 40 years prior to the global financial crisis, investors in money market funds received handsome positive nominal returns that not only moved up when rates were rising, but also often exceeded inflation. But owing to the structural changes in the market, a positive inflation-adjusted real return for money market fund investors is likely becoming a distant memory. Do these reforms have a direct impact on the ETF market specifically? And what role might ETFs play in the resulting asset shifts? Zahradnik: For the first part of the question, the short answer is no. The new rules apply only to money market funds, so their impact on ETFs is more indirect, in that we could see demand pick up for ETFs positioned to offer an effective alternative for cash and liquidity management. ETFs provide the benefit of both portfolio and price transparency, given that holdings are posted daily and the funds trade on exchanges at market prices throughout the day. ETFs have always featured floating NAVs, which are calculated at the end of each trading day. Additionally, investors in ETFs avoid the potential for liquidity gates that will accompany prime money market funds following the reform. With these factors in mind, we believe the reform could shift some of the prior demand for prime money market funds to short-duration ETFs that meet investors needs for liquidity and capital preservation. What are you seeing now with Treasury index ETFs, and how should investors think about their use versus actively managed ETFs for cash management? Zahradnik: The big issue for pure Treasury index ETFs is that yields continue to be suppressed. Although flows for these funds have been mixed, in aggregate they have seen outflows in 2016 to date. Table 1: Yields on Treasury index ETFs have been persistently low Fund Type Total AUM ($ millions) Total YTD flows ($ millions) Weighted average return Weighted average yield Prime money market funds 494,802 (742,353) 0.24% 0.37% Index ultra-short-term Treasury bond ETFs Actively managed ultra-shortterm bond ETFs 5,239 (348) 0.24% 0.25% 8,443 1, % 1.30% Source: Cranes for prime funds as of 30 September 2016; Bloomberg, Citi Research and PIMCO for ETFs as of 30 September 2016

3 October 2016 Strategy Spotlight 3 That may seem counterintuitive, given the recent moves into government securities. But because yields on three-month Treasury bills have continued to compress, return potential for Treasury ETFs has been very low, even considering these funds generally low fees. Over the past few years, yields on Treasury ETFs have barely exceeded total expenses; and while the Fed s December 2015 rate increase led to a slight uptick, yields remain low (see Table 1). So we can expect low returns to persist for pure passive Treasury index ETFs that have limited ability to deviate from their indexes, given that reform-driven demand for the underlying bonds will keep the pressure on yields. Given these considerations, we believe actively managed ETFs invested in securities beyond the index and able to take advantage of reform-driven dislocations in the market may be the better choice in the current environment. Options such as PIMCO s MINT (Enhanced Short Maturity Active Exchange-Traded Fund) and LDUR (Low Duration Active Exchange-Traded Fund), which target short-term or short-duration investments outside the scope of regulated money markets, may be attractive to investors looking for money market alternatives and who can tolerate modestly higher volatility than that in government money funds. Short-duration ETFs like MINT and LDUR emphasize capital preservation, but because they have the flexibility to trade in assets beyond regulated money markets, they can exploit targeted opportunities for enhanced yield and total return potential. And an active, risk-focused approach helps Active management can help mitigate volatility Yield (%) Jan 15 Mar 15 May 15 July 15 Sep 15 MINT (average 12-mo. dist. yield) Barclays Aggregate yield to maturity to limit volatility while still taking advantage of pockets of value outside the benchmark. These attributes may appeal to investors who are seeking to go beyond simply maintaining par to protect their purchasing power. In a world where exposure to interest rates is a major source of volatility for many portfolios, especially at the front end of the yield curve, active management may help mitigate that risk with the goal of producing potentially better risk-adjusted returns (see chart). Nov 15 Jan 16 Mar 16 May 16 Jul 16 LDUR (average 12-mo. dist. yield) Source: PIMCO as of 30 September 2016 Inception Table 2: Returns (after fees) 1-year 3-year 5-year S.I. returns date PIMCO Enhanced Short Maturity ETF (MINT) (NAV total return after fees) 1.81% 0.95% 1.20% 1.16% 16 Nov 09 PIMCO Enhanced Short Maturity ETF (MINT) (market price returns) 1.81% 0.96% 1.18% 1.16% Citigroup 3 Month Treasury Bill Index 0.20% 0.09% 0.08% 0.09% PIMCO Low Duration ETF (LDUR) (NAV total return after fees) 3.50% 2.53% 29 Jan 14 PIMCO Low Duration ETF (LDUR) (market price returns) 3.70% 2.58% BofA Merrill Lynch 1-3 Yr Treasury Index 0.88% 0.93% LDUR 30-day SEC Yield =1.20%* Total expenses 0.36% MINT 30-day SEC Yield = 1.18%* Total expenses 0.57% Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and principal value will fluctuate, so that Fund shares may be worth more or less than their original cost when redeemed. Performance data current to the most recent month-end for the ETFs is available at or by calling ETF. Performance shown for the institutional share class as of 30 September The total expenses include the accounting treatment of certain investments (e.g. reverse repurchase agreements). The interest expense on these investments is required to be treated as a fund expense for accounting purposes and is not payable to PIMCO. *The 30-day SEC Yield is as of 30 September Sep 16

4 4 October 2016 Strategy Spotlight What other considerations would you point out to ETF investors? Schneider: It s more important than ever for investors to understand an ETF s strategy for risk and return management and to have a good understanding of its actual investments. For instance, does the ETF invest in high yield? Does it take non-dollar positions? We believe, for example, that floating rate assets linked to Libor may be a good bet right now because banks will likely continue paying relatively higher funding costs as a result of structural changes. We hold these securities in both MINT and LDUR. However, floating rate index ETFs that do not employ rigorous credit analysis and size their holdings based on the issuer s amount of debt outstanding can have unintended risks. Investors also must fully understand the strategy behind these funds. Is the fund sufficiently focused on maintaining purchasing power, in addition to providing liquidity and preserving capital? In a lower for longer interest rate reality where traditional money market funds have failed to deliver returns that exceed inflation, this has become paramount. Lastly, it s important to consider an ETF s track record, longevity and management team. Has it benefited in past cycles from responsive management, performing well against its benchmark while mitigating volatility? Time-tested short-duration ETF strategies like those behind PIMCO s MINT and LDUR, which aim to maximize cash potential while protecting against rising rates, may offer an attractive solution to investors in the new reality of liquidity management. Independent evaluators including Morningstar and Lipper have recognized PIMCO s short-term team, which manages these ETFs, for the longterm performance of many strategies as well as the portfolio managers tenure, diversified skill sets and active management of liquidity through diverse market conditions. With more than 30 years managing liquidity-minded portfolios, our goal is to help our clients successfully balance their needs for liquidity and true purchasing power preservation.

5 This material is authorized for use only when preceded or accompanied by the current PIMCO funds prospectus or summary prospectus, if available. A Word About Risk: Investing in the bond market is subject to certain risks including the risk that fixed income securities will decline in value because of changes in interest rates; the risk that fund shares could trade at prices other than the net asset value; and the risk that the manager s investment decisions might not produce the desired results. Investments may be worth more or less than the original cost when redeemed. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Mortgage and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee there is no assurance that private guarantors will meet their obligations. Certain U.S. Government securities are backed by the full faith of the government, obligations of U.S. Government agencies and authorities are supported by varying degrees but are generally not backed by the full faith of the U.S. Government; portfolios that invest in such securities are not guaranteed and will fluctuate in value. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Mortgage and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee there is no assurance that private guarantors will meet their obligations. High-yield, lower-rated, securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Diversification does not ensure against loss. Exchange Traded Funds ( ETF ) are afforded certain exemptions from the Investment Company Act. The exemptions allow, among other things, for individual shares to trade on the secondary market. Individual shares cannot be directly purchased from or redeemed by the ETF. Purchases and redemptions directly with ETFs are only accomplished through creation unit aggregations or baskets of shares. Shares of an ETF are bought and sold at market price (not NAV). Brokerage commissions will reduce returns. Investment policies, management fees and other information can be found in the individual ETF s prospectus. Buying or selling ETF shares on an exchange may require the payment of brokerage commissions. Due to the costs inherent in buying or selling Fund shares, frequent trading may detract significantly from investment returns. Investment in Fund shares may not be advisable for investors who expect to engage in frequent trading. Foreign (non-u.s.) fixed income securities will settle in accordance with the normal rules of settlement in the applicable foreign (non-u.s.) market. Foreign holidays that may impact a foreign market may extend the period of time between the date of receipt of a redemption order and the redemption settlement date. Please see the Funds Statement of Additional Information at Investments made by a Fund and the results achieved by a Fund are not expected to be the same as those made by any other PIMCO-advised Fund, including those with a similar name, investment objective or policies. A new or smaller Fund s performance may not represent how the Fund is expected to or may perform in the long-term. New Funds have limited operating histories for investors to evaluate and new and smaller Funds may not attract sufficient assets to achieve investment and trading efficiencies. A Fund may be forced to sell a comparatively large portion of its portfolio to meet significant shareholder redemptions for cash, or hold a comparatively large portion of its portfolio in cash due to significant share purchases for cash, in each case when the Fund otherwise would not seek to do so, which may adversely affect performance. Money market funds may only invest in certain high quality short term investments issued by the U.S. government, U.S. corporations, and state and local governments that are subject to strict diversification and maturity standards and ultra-short bond funds are not subject to these requirements. Further, money market funds seek to maintain a stable NAV of $1.00 per share. LIBOR (London Interbank Offered Rate) is the rate banks charge each other for short-term Eurodollar loans. It is not possible to invest directly in an unmanaged index. This material contains the current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. 2016, PIMCO PIMCO Investments LLC, distributor, 1633 Broadway, New York, NY, is a company of PIMCO. Newport Beach Headquarters 650 Newport Center Drive Newport Beach, CA Amsterdam Hong Kong London Milan Munich New York Rio de Janeiro Singapore Sydney Tokyo Toronto Zurich pimco.com blog.pimco.com PC163_47479 CMR

6 PIMCO Enhanced Short Maturity Active Exchange-Traded Fund SUMMARY PROSPECTUS October 31, 2016 Ticker MINT NYSE Arca Before you invest, you may want to review the Fund s prospectus, which contains more information about the Fund and its risks. You can find the Fund s prospectus and other information about the Fund online at pimcoetfs.com/resources. You can also get this information at no cost by calling ETF ( ) or by sending an request to piprocess@bfdsmidwest.com. The Fund s prospectus and Statement of Additional Information, both dated October 31, 2016, as supplemented, along with the financial statements included in the Fund s most recent annual report to shareholders dated June 30, 2016 are incorporated by reference into this Summary Prospectus. Investment Objective The Fund seeks maximum current income, consistent with preservation of capital and daily liquidity. Fees and Expenses of the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund: Shareholder Fees (fees paid directly from your investment): None Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment): Management Fees 0.35% Distribution and/or Service (12b-1) Fees Other Expenses (1) 0.01% Total Annual Fund Operating Expenses 0.36% 1 Other Expenses include interest expense of 0.01%. Interest expense is borne by the Fund separately from the management fees paid to Pacific Investment Management Company LLC ( PIMCO ). Excluding interest expense, Total Annual Fund Operating Expenses are 0.35%. Example. The Example is intended to help you compare the cost of investing in the Fund with the costs of investing in other exchange-traded funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund s operating expenses remain the same. Investors may pay brokerage commissions on their purchases and sales of Fund shares, which are not reflected in the Example. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 Year 3 Years 5 Years 10 Years $37 $116 $202 $456 Portfolio Turnover The Fund pays transaction costs when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held N/A in a taxable account. These costs, which are not reflected in the Annual Fund Operating Expenses or in the Example tables, affect the Fund s performance. During the most recent fiscal year, the Fund s portfolio turnover rate was 208% of the average value of its portfolio. Principal Investment Strategies The Fund seeks to achieve its investment objective by investing under normal circumstances at least 80% of its net assets in a diversified portfolio of Fixed Income Instruments of varying maturities, which may be represented by forwards. Fixed Income Instruments include bonds, debt securities and other similar instruments issued by various U.S. and non-u.s. public- or private-sector entities. The average portfolio duration of this Fund will vary based on PIMCO s forecast for interest rates and will normally not exceed one year. Duration is a measure used to determine the sensitivity of a security s price to changes in interest rates. The longer a security s duration, the more sensitive it will be to changes in interest rates. The dollarweighted average portfolio maturity of the Fund is normally not expected to exceed three years. The Fund primarily invests in U.S. dollar-denominated investment grade debt securities, rated Baa or higher by Moody s Investors Service, Inc. ( Moody s ), or equivalently rated by Standard & Poor s Ratings Services ( S&P ) or Fitch, Inc. ( Fitch ), or, if unrated, determined by PIMCO to be of comparable quality. The Fund may invest, without limitation, in U.S. dollardenominated securities and instruments of foreign issuers. The Fund may invest, without limitation, in mortgage or asset-backed securities, including to-be-announced transactions. The Fund may purchase and sell securities on a when-issued, delayed delivery or forward commitment basis. The Fund may, without limitation, seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs or dollar rolls). Principal Risks It is possible to lose money on an investment in the Fund. The principal risks of investing in the Fund, which could adversely affect its net asset value, yield and total return are: Market Trading Risk: the risk that an active secondary trading market for Fund shares does not continue once developed, that the Fund may not continue to meet a listing exchange s trading or listing requirements, or that Fund shares trade at prices other than the Fund s net asset value Interest Rate Risk: the risk that fixed income securities will decline in value because of an increase in interest rates; a fund with a longer average portfolio duration will be more sensitive to changes in interest rates than a fund with a shorter average portfolio duration Call Risk: the risk that an issuer may exercise its right to redeem a fixed income security earlier than expected (a call). Issuers may call outstanding securities prior to their maturity for a number of reasons (e.g., declining interest rates, changes in credit spreads and improvements in the issuer s credit quality). If an issuer calls a security that the Fund has invested in, the Fund may not recoup the full amount of its initial investment and may be PIMCO ETF TRUST SUMMARY PROSPECTUS

7 PIMCO Enhanced Short Maturity Active Exchange-Traded Fund forced to reinvest in lower-yielding securities, securities with greater credit risks or securities with other, less favorable features Credit Risk: the risk that the Fund could lose money if the issuer or guarantor of a fixed income security, or the counterparty to a forward commitment transaction, is unable or unwilling to meet its financial obligations Market Risk: the risk that the value of securities owned by the Fund may go up or down, sometimes rapidly or unpredictably, due to factors affecting securities markets generally or particular industries Issuer Risk: the risk that the value of a security may decline for a reason directly related to the issuer, such as management performance, financial leverage and reduced demand for the issuer s goods or services Liquidity Risk: the risk that a particular investment may be difficult to purchase or sell and that the Fund may be unable to sell illiquid securities at an advantageous time or price or achieve its desired level of exposure to a certain sector. Liquidity risk may result from the lack of an active market, reduced number and capacity of traditional market participants to make a market in fixed income securities, and may be magnified in a rising interest rate environment or other circumstances where investor redemptions from fixed income funds may be higher than normal, causing increased supply in the market due to selling activity Mortgage-Related and Other Asset-Backed Securities Risk: the risks of investing in mortgage-related and other asset-backed securities, including interest rate risk, extension risk, prepayment risk, and credit risk Foreign (Non-U.S.) Investment Risk: the risk that investing in foreign (non-u.s.) securities may result in the Fund experiencing more rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies, due to smaller markets, differing reporting, accounting and auditing standards, increased risk of delayed settlement of portfolio transactions or loss of certificates of portfolio securities, and the risk of unfavorable foreign government actions, including nationalization, expropriation or confiscatory taxation, currency blockage, or political changes or diplomatic developments. Foreign securities may also be less liquid and more difficult to value than securities of U.S. issuers Leveraging Risk: the risk that certain transactions of the Fund, such as reverse repurchase agreements, loans of portfolio securities, and the use of when-issued, delayed delivery or forward commitment transactions may give rise to leverage, magnifying gains and losses and causing the Fund to be more volatile than if it had not been leveraged. This means that leverage entails a heightened risk of loss Management Risk: the risk that the investment techniques and risk analyses applied by PIMCO will not produce the desired results and that legislative, regulatory, or tax restrictions, policies or developments may affect the investment techniques available to PIMCO and the individual portfolio manager in connection with managing the Fund. There is no guarantee that the investment objective of the Fund will be achieved Please see Description of Principal Risks in the Fund s prospectus for a more detailed description of the risks of investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Performance Information The performance information shows summary performance information for the Fund in a bar chart and an Average Annual Total Returns table. The information provides some indication of the risks of investing in the Fund by showing changes in its performance from year to year and by showing how the Fund s average annual returns compare with the returns of a broadbased securities market index. Absent any applicable fee waivers and/or expense limitations, if any, performance would have been lower. The Fund s past performance, before and after taxes, is not necessarily an indication of how the Fund will perform in the future. The Citi 3-Month Treasury Bill Index is an unmanaged index representing monthly return equivalents of yield averages of the last 3 month Treasury Bill issues. The Fund began operations on 11/16/09. Index comparisons began on 11/30/09. Performance is updated daily and quarterly and may be obtained at Calendar Year Total Returns* (%) % 0.42% 2.48% 0.72% 0.53% 0.52% '10 '11 '12 '13 '14 '15 Years *The year-to-date return as of September 30, 2016 is 1.61%. For the periods shown in the bar chart, the highest quarterly return was 1.24% in the Q1 2012, and the lowest quarterly return was -0.57% in the Q Average Annual Total Returns (for periods ended 12/31/15) 1 Year 5 Years Since Inception (11/16/2009) Return Before Taxes 0.52% 0.93% 1.04% Return After Taxes on Distributions (1) 0.14% 0.56% 0.68% Return After Taxes on Distributions and Sales of Fund 0.29% 0.56% 0.66% Shares (1) Citi 3-Month Treasury Bill Index (reflects no deductions for fees, expenses or taxes) 0.03% 0.05% 0.07% (1) After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor s tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. In some cases the return after taxes may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of Fund shares at the end of the measurement period. 2. SUMMARY PROSPECTUS PIMCO ETF TRUST

8 Summary Prospectus Investment Adviser/Portfolio Manager PIMCO serves as the investment adviser for the Fund. The Fund s portfolio is managed by Jerome Schneider. Mr. Schneider is a Managing Director of PIMCO, and he has managed the Fund since its inception in November Purchase and Sale of Fund Shares The Fund is an exchange-traded fund ( ETF ). Individual Fund shares may only be purchased and sold on a national securities exchange through a broker-dealer and may not be purchased or redeemed directly with the Fund. The price of Fund shares is based on market price, and because ETF shares trade at market prices rather than net asset value ( NAV ), shares may trade at a price greater than NAV (a premium) or less than NAV (a discount). The Fund will only issue or redeem shares at NAV that have been aggregated into blocks of 70,000 shares or multiples thereof ( Creation Units ) with certain large institutional investors who have entered into agreements with the Fund s Distributor ( Authorized Participants ). The Fund will issue or redeem Creation Units in return for a basket of cash and/ or securities that the Fund specifies each Business Day. Tax Information The Fund s taxable distributions are generally taxable to you as ordinary income, capital gains, or a combination of the two, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account, in which case distributions may be taxable upon withdrawal. Payments to Broker-Dealers and Other Financial Intermediaries If you purchase Fund shares through a broker-dealer or other financial intermediary, PIMCO or other related companies may pay the intermediary for the sale of Fund shares or related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary s website for more information. October 31, 2016 SUMMARY PROSPECTUS 3.

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10 PIMCO Low Duration Active Exchange- Traded Fund SUMMARY PROSPECTUS October 31, 2016 Ticker LDUR NYSE Arca Before you invest, you may want to review the Fund s prospectus, which contains more information about the Fund and its risks. You can find the Fund s prospectus and other information about the Fund online at pimcoetfs.com/resources. You can also get this information at no cost by calling ETF ( ) or by sending an request to piprocess@bfdsmidwest.com. The Fund s prospectus and Statement of Additional Information, both dated October 31, 2016, as supplemented, along with the financial statements included in the Fund s most recent annual report to shareholders dated June 30, 2016 are incorporated by reference into this Summary Prospectus. Investment Objective The Fund seeks maximum total return, consistent with preservation of capital and prudent investment management. Fees and Expenses of the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund: Shareholder Fees (fees paid directly from your investment): None Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment): Management Fees 0.55% Distribution and/or Service (12b-1) Fees Other Expenses (1) 0.09% Total Annual Fund Operating Expenses 0.64% Fee Waiver and/or Expense Reimbursement (2) (0.06%) Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement N/A 0.58% 1 Other Expenses include interest expense of 0.08%. Interest expense is borne by the Fund separately from the management fees paid to Pacific Investment Management Company LLC ( PIMCO ). Excluding interest expense, Total Annual Fund Operating Expenses are 0.56%. 2 PIMCO has contractually agreed, through October 31, 2017, to reduce its management fee by 0.06% of the average daily net assets of the Fund. This Fee Limitation Agreement renews annually unless terminated by PIMCO upon at least 30 days prior notice to the end of the contract term. Under certain conditions, PIMCO may recoup amounts reduced in future periods, not exceeding three years. Example. The Example is intended to help you compare the cost of investing in the Fund with the costs of investing in other exchange-traded funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund s operating expenses remain the same. Investors may pay brokerage commissions on their purchases and sales of Fund shares, which are not reflected in the Example. Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 Year 3 Years 5 Years 10 Years $59 $199 $351 $793 Portfolio Turnover The Fund pays transaction costs when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in the Annual Fund Operating Expenses or in the Example tables, affect the Fund s performance. During the most recent fiscal year, the Fund s portfolio turnover rate was 2,288% of the average value of its portfolio. Principal Investment Strategies The Fund seeks to achieve its investment objective by investing under normal circumstances at least 65% of its total assets in a diversified portfolio of Fixed Income Instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts, or swap agreements. Fixed Income Instruments include bonds, debt securities and other similar instruments issued by various U.S. and non-u.s. public- or private-sector entities. The average portfolio duration of this Fund normally varies from one to three years based on PIMCO s forecast for interest rates. Duration is a measure used to determine the sensitivity of a security s price to changes in interest rates. The longer a security s duration, the more sensitive it will be to changes in interest rates. The Fund invests primarily in investment grade debt securities, but may invest up to 10% of its total assets in high yield securities ( junk bonds ) rated B or higher by Moody s Investors Service, Inc. ( Moody s ), or equivalently rated by Standard & Poor s Rating Services ( S&P ) or Fitch, Inc. ( Fitch ), or, if unrated, determined by PIMCO to be of comparable quality. The Fund may invest up to 30% of its total assets in securities denominated in foreign currencies, and may invest beyond this limit in U.S. dollar-denominated securities of foreign issuers. The Fund will normally limit its foreign currency exposure (from non-u.s. dollar-denominated securities or currencies) to 20% of its total assets. The Fund may invest up to 10% of its total assets in securities and instruments that are economically tied to emerging market countries. The Fund may invest, without limitation, in derivative instruments, such options, futures contracts or swap agreements, or in mortgage- or assetbacked securities, subject to applicable law and any other restrictions described in the Fund s prospectus or Statement of Additional Information. The Fund may purchase or sell securities on a when-issued, delayed delivery or forward commitment basis and may engage in short sales. The Fund may, without limitation, seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs or dollar rolls). The total return sought by the Fund consists of income earned on the Fund s investments, plus capital appreciation, if any, which generally arises from decreases in interest rates, foreign currency appreciation, or improving credit fundamentals for a particular sector or security. The Fund may also invest up to 10% of its total assets in preferred stock, convertible securities and other equity-related securities. PIMCO ETF TRUST SUMMARY PROSPECTUS

11 PIMCO Low Duration Active Exchange-Traded Fund Principal Risks It is possible to lose money on an investment in the Fund. The principal risks of investing in the Fund, which could adversely affect its net asset value, yield and total return are: New/Small Fund Risk: the risk that a new or smaller Fund s performance may not represent how the Fund is expected to or may perform in the long term. In addition, new Funds have limited operating histories for investors to evaluate and new and smaller Funds may not attract sufficient assets to achieve investment and trading efficiencies Market Trading Risk: the risk that an active secondary trading market for Fund shares does not continue once developed, that the Fund may not continue to meet a listing exchange s trading or listing requirements, or that Fund shares trade at prices other than the Fund s net asset value Interest Rate Risk: the risk that fixed income securities will decline in value because of an increase in interest rates; a fund with a longer average portfolio duration will be more sensitive to changes in interest rates than a fund with a shorter average portfolio duration Call Risk: the risk that an issuer may exercise its right to redeem a fixed income security earlier than expected (a call). Issuers may call outstanding securities prior to their maturity for a number of reasons (e.g., declining interest rates, changes in credit spreads and improvements in the issuer s credit quality). If an issuer calls a security that the Fund has invested in, the Fund may not recoup the full amount of its initial investment and may be forced to reinvest in lower-yielding securities, securities with greater credit risks or securities with other, less favorable features Credit Risk: the risk that the Fund could lose money if the issuer or guarantor of a fixed income security, or the counterparty to a derivative contract, is unable or unwilling to meet its financial obligations High Yield Risk: the risk that high yield securities and unrated securities of similar credit quality (commonly known as junk bonds ) are subject to greater levels of credit, call and liquidity risks. High yield securities are considered primarily speculative with respect to the issuer s continuing ability to make principal and interest payments, and may be more volatile than higher-rated securities of similar maturity Market Risk: the risk that the value of securities owned by the Fund may go up or down, sometimes rapidly or unpredictably, due to factors affecting securities markets generally or particular industries Issuer Risk: the risk that the value of a security may decline for a reason directly related to the issuer, such as management performance, financial leverage and reduced demand for the issuer s goods or services Liquidity Risk: the risk that a particular investment may be difficult to purchase or sell and that the Fund may be unable to sell illiquid securities at an advantageous time or price or achieve its desired level of exposure to a certain sector. Liquidity risk may result from the lack of an active market, reduced number and capacity of traditional market participants to make a market in fixed income securities, and may be magnified in a rising interest rate environment or other circumstances where investor redemptions from fixed income funds may be higher than normal, causing increased supply in the market due to selling activity Derivatives Risk: the risk of investing in derivative instruments (such as futures, swaps and structured securities), including liquidity, interest rate, market, credit and management risks, mispricing or valuation complexity. Changes in the value of the derivative may not correlate perfectly with, and may be more sensitive to market events than, the underlying asset, rate or index, and the Fund could lose more than the initial amount invested. The Fund s use of derivatives may result in losses to the Fund, a reduction in the Fund s returns and/or increased volatility. Over-the-counter ( OTC ) derivatives are also subject to the risk that a counterparty to the transaction will not fulfill its contractual obligations to the other party, as many of the protections afforded to centrally-cleared derivative transactions might not be available for OTC derivatives. For derivatives traded on an exchange or through a central counterparty, credit risk resides with the creditworthiness of the Fund s clearing broker, or the clearinghouse itself, rather than to a counterparty in an OTC derivative transaction. Changes in regulation relating to a fund s use of derivatives and related instruments could potentially limit or impact the Fund s ability to invest in derivatives, limit the Fund s ability to employ certain strategies that use derivatives and/or adversely affect the value of derivatives and the Fund s performance Equity Risk: the risk that the value of equity securities, such as common stocks and preferred stocks, may decline due to general market conditions which are not specifically related to a particular company or to factors affecting a particular industry or industries. Equity securities generally have greater price volatility than fixed income securities Mortgage-Related and Other Asset-Backed Securities Risk: the risks of investing in mortgage-related and other asset-backed securities, including interest rate risk, extension risk, prepayment risk, and credit risk Foreign (Non-U.S.) Investment Risk: the risk that investing in foreign (non-u.s.) securities may result in the Fund experiencing more rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies, due to smaller markets, differing reporting, accounting and auditing standards, increased risk of delayed settlement of portfolio transactions or loss of certificates of portfolio securities, and the risk of unfavorable foreign government actions, including nationalization, expropriation or confiscatory taxation, currency blockage, or political changes or diplomatic developments. Foreign securities may also be less liquid and more difficult to value than securities of U.S. issuers Emerging Markets Risk: the risk of investing in emerging market securities, primarily increased foreign (non-u.s.) investment risk Currency Risk: the risk that foreign (non-u.s.) currencies will change in value relative to the U.S. dollar and affect the Fund s investments in foreign (non-u.s.) currencies or in securities that trade in, and receive revenues in, or in derivatives that provide exposure to, foreign (non-u.s.) currencies Leveraging Risk: the risk that certain transactions of the Fund, such as reverse repurchase agreements, loans of portfolio securities, and the use of when-issued, delayed delivery or forward commitment transactions, or derivative instruments, may give rise to leverage, magnifying gains and losses and causing the Fund to be more volatile than if it had not been leveraged. This means that leverage entails a heightened risk of loss Management Risk: the risk that the investment techniques and risk analyses applied by PIMCO will not produce the desired results and that 2. SUMMARY PROSPECTUS PIMCO ETF TRUST

12 Summary Prospectus legislative, regulatory, or tax restrictions, policies or developments may affect the investment techniques available to PIMCO and the individual portfolio manager in connection with managing the Fund. There is no guarantee that the investment objective of the Fund will be achieved Short Sale Risk: the risk of entering into short sales, including the potential loss of more money than the actual cost of the investment, and the risk that the third party to the short sale will not fulfill its contractual obligations, causing a loss to the Fund Please see Description of Principal Risks in the Fund s prospectus for a more detailed description of the risks of investing in the Fund. An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Performance Information The performance information shows summary performance information for the Fund in a bar chart and an Average Annual Total Returns table. The information provides some indication of the risks of investing in the Fund by showing changes in its performance from year to year and by showing how the Fund s average annual returns compare with the returns of a broadbased securities market index. Absent any applicable fee waivers and/or expense limitations, if any, performance would have been lower. The Fund s past performance, before and after taxes, is not necessarily an indication of how the Fund will perform in the future. The BofA Merrill Lynch 1-3 Year U.S. Treasury Index is an unmanaged index comprised of U.S. Treasury securities, other than inflation-protection securities and STRIPS, with at least $1 billion in outstanding face value and a remaining term to final maturity of at least one year and less than three years. Performance is updated daily and quarterly and may be obtained at Calendar Year Total Returns* (%) % '15 Years Average Annual Total Returns (for periods ended 12/31/15) 1 Year Since Inception (01/22/14) Return Before Taxes 2.04% 2.02% Return After Taxes on Distributions (1) 0.84% 1.02% Return After Taxes on Distributions and Sales of Fund Shares (1) 1.22% 1.11% BofA Merrill Lynch 1-3 Year U.S. Treasury Index (reflects no deductions for fees, expenses or taxes) 0.54% 0.60% (1) After-tax returns are calculated using the highest historical individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor s tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. In some cases the return after taxes may exceed the return before taxes due to an assumed tax benefit from any losses on a sale of Fund shares at the end of the measurement period. Investment Adviser/Portfolio Manager PIMCO serves as the investment adviser for the Fund. The Fund s portfolio is managed by Jerome Schneider. Mr. Schneider is a Managing Director of PIMCO, and he has managed the Fund since January Purchase and Sale of Fund Shares The Fund is an exchange-traded fund ( ETF ). Individual Fund shares may only be purchased and sold on a national securities exchange through a broker-dealer and may not be purchased or redeemed directly with the Fund. The price of Fund shares is based on market price, and because ETF shares trade at market prices rather than net asset value ( NAV ), shares may trade at a price greater than NAV (a premium) or less than NAV (a discount). The Fund will only issue or redeem shares at NAV that have been aggregated into blocks of 50,000 shares or multiples thereof ( Creation Units ) with certain large institutional investors who have entered into agreements with the Fund s Distributor ( Authorized Participants ). The Fund will issue or redeem Creation Units in return for a basket of cash and/ or securities that the Fund specifies each Business Day. Tax Information The Fund s taxable distributions are generally taxable to you as ordinary income, capital gains, or a combination of the two, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account, in which case distributions may be taxable upon withdrawal. *The year-to-date return as of September 30, 2016 is 2.87%. For the periods shown in the bar chart, the highest quarterly return was 1.41% in the Q1 2015, and the lowest quarterly return was -0.58% in the Q October 31, 2016 SUMMARY PROSPECTUS 3.