In strengthening its market niche, PIMCO has launched the third addition to its family of actively-managed bond funds. The fund will select top municipal bonds to cater to investors seeking tax-free returns.

The PIMCO Short Term Municipal Bond Strategy Fund (SMMU: Quote, Profile, Advanced Chart, News) will track the Barclays Capital 1-3 Year Municipal Bond Index, an index already in use by iShares, Van Eck, and SPDR. The fund is actively managed, however, in an effort to avoid the issue of front-running trading manipulating the market before the ETF is adjusted each day. PIMCO brought the issue to the forefront of bond ETF investing after it found bond investors were paying substantially higher costs due to the industry’s practice.

The newest ETF contains 26 different bond investments, with nearly $8 million in assets, according to the prospectus. The fund will trade for a reasonable .35% annual expense.