Spotlight
FIXED INCOME
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*Source: The Investment Association; As at 08.03.18
Welcome
An uptick in volatility in the early part of 2018 has resulted in investors exercising caution and moving away from riskier asset classes. It is no surprise therefore that fixed income was the best-selling asset class in January, with net retail flows in the UK totaling some £1.6bn.* At a time when market uncertainty continues to impact investor sentiment, fixed income is proving to be a popular asset class that is able to provide access to a variety of sectors, at a range of desirable risk levels. Yet as central banks move away from ultra-loose monetary policy, and the global economic expansion matures, bond fund managers will need to ensure their portfolios draw on a truly diverse range of sources of return and carefully consider portfolio risk if they are to generate yield in the current market environment. In this Spotlight guide, we discuss the range of solutions on offer to investors seeking long-term returns in the fixed income space today; from exploring the use of oft-neglected asset classes, such as mortgage-backed securities, to how strategies untethered to traditional bond benchmarks can help active managers respond to changing market conditions.
FOR PROFESSIONAL USE ONLY Past performance is not a guarantee or reliable indicator of future results and no guarantee is being made that similar returns will be achieved in the future. The services and products described in this communication are only available to professional clients as defined in the Financial Conduct Authority’s Handbook. This communication is not a public offer and individual investors should not rely on this document. Opinion and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. PIMCO GIS Funds: Global Investors Series plc is an umbrella type open-ended investment company with variable capital and is incorporated with limited liability under the laws of Ireland with registered number 276928. The information is not for use within any country or with respect to any person(s) where such use could constitute a violation of the applicable law. The information contained in this communication is intended to supplement information contained in the prospectus for this Fund and must be read in conjunction therewith. Investors should consider the investment objectives, risks, charges and expenses of these Funds carefully before investing. This and other information is contained in the Fund’s prospectus. Please read the prospectus carefully before you invest or send money. Past performance is not a guarantee or a reliable indicator of future results and no guarantee is being made that similar returns will be achieved in the future. Returns are net of fees and other expenses and include reinvestment of dividends. The performance data represents past performance and investment return and principal value will fluctuate so that the PIMCO GIS Funds shares, when redeemed, may be worth more or less than the original cost. Potential differences in performance figures are due to rounding. The Fund may invest in non-U.S. or non-Eurozone securities which involves potentially higher risks including non-U.S. or non-Euro currency fluctuations and political or economic uncertainty. For informational purposes only. Please note that not all Funds are registered for sale in every jurisdiction. Please contact PIMCO for more information. For additional information and/or a copy of the Fund’s prospectus, please contact the Administrator: State Street Fund Services (Ireland) Limited, Telephone +353-1-776-0142, Fax +353-1-562-5517. © 2018. PIMCO Select Funds: PIMCO Select Funds plc is an umbrella type open-ended investment company with variable capital and with segregated liability between Funds incorporated with limited liability under the laws of Ireland with registered number 480045. The information is not for use within any country or with respect to any person(s) where such use could constitute a violation of the applicable law. The information contained in this communication is intended to supplement information contained in the prospectus for this Fund and must be read in conjunction therewith. Investors should consider the investment objectives, risks, charges and expenses of these Funds carefully before investing. This and other information is contained in the Fund’s prospectus. Please read the prospectus carefully before you invest or send money. For additional information and/or a copy of the Fund’s prospectus, please contact the Administrator: State Street Fund Services (Ireland) Limited, Telephone +353.1.776.0142, Fax +353.1.562.5517. Benchmark - Unless otherwise stated in the prospectus or in the relevant key investor information document, the Fund referenced in this material is not managed against a particular benchmark or index, and any reference to a particular benchmark or index in this material is made solely for risk or performance comparison purposes. Additional information - This material may contain additional information, not explicit in the prospectus, on how the Fund or strategy is currently managed. Such information is current as at the date of the presentation and may be subject to change without notice. Investment Restrictions - In accordance with the UCITS regulations and subject to any investment restrictions outlined in the Fund’s prospectus, the Fund may invest over 35% of net assets in different transferable securities and money market instruments issued or guaranteed by any of the following: OECD Governments (provided the relevant issues are investment grade), Government of Singapore, European Investment Bank, European Bank for Reconstruction and Development, International Finance Corporation, International Monetary Fund, Euratom, The Asian Development Bank, European Central Bank, Council of Europe, Eurofima, African Development Bank, International Bank for Reconstruction and Development (The World Bank), The Inter American Development Bank, European Union, Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), Government National Mortgage Association (Ginnie Mae), Student Loan Marketing Association (Sallie Mae), Federal Home Loan Bank, Federal Farm Credit Bank, Tennessee Valley Authority, Straight-A Funding LLC. RISK: 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. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Commodities contain heightened risk, including market, political, regulatory and natural conditions, and may not be suitable for all investors. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Derivatives may involve certain costs and risks, such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. Equities may decline in value due to both real and perceived general market, economic and industry conditions. 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. Sovereign securities are generally backed by the issuing 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. 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. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government-agency or private guarantor, there is no assurance that the guarantor will meet its obligations. Income from municipal bonds may be subject to state and local taxes and at times the alternative minimum tax. Swaps are a type of derivative; swaps are increasingly subject to central clearing and exchange-trading. Swaps that are not centrally cleared and exchange-traded may be less liquid than exchange-traded instruments. Inflation-linked bonds (ILBs) issued by a government are fixed income securities whose principal value is periodically adjusted according to the rate of inflation; ILBs decline in value when real interest rates rise. Treasury Inflation-Protected Securities (TIPS) are ILBs issued by the U.S. government. 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. PIMCO Europe Ltd (Company No. 2604517) and PIMCO Europe Ltd - Italy (Company No. 07533910969) are authorised and regulated by the Financial Conduct Authority (25 The North Colonnade, Canary Wharf, London E14 5HS) in the UK. The Italy branch is additionally regulated by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act. PIMCO Europe Ltd services and products are available only to professional clients as defined in the Financial Conduct Authority’s Handbook and are not available to individual investors, who should not rely on this communication.
The actual experience of moving away from ultra-loose monetary policy could prove too onerous for economies and asset markets
The final theme we see for 2018 is the ongoing search for yield. Interest rates may be expected to rise in the year ahead, but given low starting levels, investors will have to continue to work hard to generate attractive income while managing risk. Multi-sector strategies, such as the PIMCO Select UK Income Bond Fund, highlighted here, which has the flexibility to tap into a range of sectors, including opportunities outside the UK, are likely to remain key allocations within portfolios. In short, while we do not expect an immediate sustained downturn, we prefer a somewhat cautious approach to portfolio positioning. There are several important risk management considerations on the horizon and investors should consider strategies that offer both flexibility and diversification.
Generating income
Another theme we see is a desire to diversify away from traditional areas of credit, such as high yield and investment grade, where valuations have tightened in recent years and which could be exposed to any decline in risk appetite. A potentially attractive alternative to these credit sectors is the US mortgage-backed securities (MBS) market. Although often overlooked by UK investors, US MBS can provide diversification to traditional corporate credit and add yield to a portfolio. Agency MBS, high quality securities supported by the US housing agencies, have generally cheapened over the last two years, in contrast to other credit markets, while non-agency MBS are generally benefiting from improving credit quality and a recovery in US housing prices. Investors can gain broad exposure to the US mortgage market through the PIMCO GIS Mortgage Opportunities Fund, which is highlighted here.
Diversifying credit exposure
With lofty valuations across many risk assets and heightened market volatility, return of capital may become as important as return on capital in the years ahead. For many investors looking to prioritise capital preservation, a natural response is to sell riskier assets and raise cash. However, investors should be mindful that market timing is all but impossible, and that accepting zero or negative real returns on cash can be a significant drag on long-term returns. One potential solution to this is an allocation to a low volatility absolute return bond strategy, which can provide potentially higher returns than bank deposits but with lower volatility than core bonds. Absolute return-oriented bond funds also have the potential to better navigate periods of rising interest rates. An example of this type of strategy is the PIMCO GIS Global Libor Plus Bond Fund, which Mike Amey, portfolio manager, discusses in more detail on the next page.
Reducing portfolio risk
Three themes for a changing macroeconomic backdrop
Markets entered 2018 with the wind at their back: investors saw double-digit equity returns, strong momentum and expectations that the synchronised global growth and corporate earnings recovery would continue. However, as recent volatility suggests, some storm clouds could be gathering. Central banks globally are moving away from ultra-loose monetary policy, and while all of these moves are well-telegraphed, the actual experience could prove too onerous for economies and asset markets that have become addicted to easy financial conditions. Equally, the risks of an inflation overshoot in 2018 are rising given the globally synchronised nature of the economic expansion, fiscal stimulus in the US, and recent rises in commodity prices. These trends could put pressure on central banks to raise policy rates more than markets expect - and perhaps more than economic growth can tolerate. While PIMCO does not expect a recession over the cyclical horizon, we believe that tight valuations combined with growing risks warrant a cautious approach, and that now might be an appropriate time for investors to re-evaluate how their portfolios are positioned. Below are three themes we believe fixed income investors should focus on in 2018.
*Source: Fidelity International, as at 31 December 2017. Return objectives are average annual return targets after deduction of ongoing fund charges over a typical market cycle of 5-7 years. The return target assumes the deduction of the ongoing charges figure (OCF) on the Y Acc share class. There is no guarantee that this return will be achieved by the funds.
Fidelity Multi Asset Open Adventurous: 6.5%
Fidelity Open World: 7%
Fidelity Multi Asset Open Defensive: 4%
Fidelity Multi Asset Open Strategic: 5%
Fidelity Multi Asset Open Growth: 5.5%
FIDELITY MULTI ASSET OPEN RANGE ANNUAL RETURN TARGETS*
We are seeing for the first time in seven or eight years, a synchronised global recovery that central banks are acting on
20-40%
30-50%
10-20%
INTEREST RATE VIEWS
CORPORATE BONDS
CURRENCY EXPOSURE
OPTIONS STRATEGIES
Expected contribution to returns
A BROAD INVESTMENT TOOLKIT HELPS THE PIMCO GIS GLOBAL LIBOR PLUS BOND FUND SEEK CONSISTENT ABSOLUTE RETURNS
Source: PIMCO Hypothetical example for illustrative purposes only
Snapshot: PIMCO Select UK Income Bond Fund
A flexible multi-sector solution seeking high and consistent income for sterling investors, with a secondary goal of capital appreciation over a full market cycle. The fund will allocate a minimum of 50% to investment grade securities
WHY INVEST IN THE FUND?
High, sustainable income and capital appreciation While maximising current income is its primary goal, the fund also seeks long-term capital appreciation and attractive risk-adjusted returns. This means that the fund aims to deliver a consistent income without sacrificing quality or principal stability to get there. Flexible multi-sector approach The fund has the flexibility to invest across the full spectrum of the sterling fixed income market, and may invest up to one-third of the portfolio in attractive investment opportunities outside this universe. It can tactically shift portfolio weightings to move to sectors that PIMCO believes offer the most attractive risk-adjusted yields. Risk-focused with an emphasis on capital preservation The fund employs exhaustive credit research and makes full use of PIMCO’s rigorous risk management capabilities. The fund will not stretch for yield by investing in securities that PIMCO deems excessively risky, and since inception has delivered a consistent yield while maintaining an investment grade quality portfolio.
PERFORMANCE
% net of fees
SI 5.33 3.67
5-YR 3.71 2.45
3-YR 2.57 1.60
1-YR 2.87 0.79
Fund Benchmark
Jan ‘18 0.00 -1.00
Source: PIMCO as of 31 January 2018 Past performance is not a guarantee or reliable indicator of future results and no guarantee is being made that similar returns will be achieved in the future All information is for the Institutional Accumulation share class after fees, which incepted on 23 February 2011. Benchmark: Bloomberg Barclays Sterling Aggregate 1-10yr bond index
KEY RISKS
• • •
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. 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. 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.
Snapshot: PIMCO GIS Global Libor Plus Bond Fund
An absolute return-oriented fixed income strategy targeting returns in excess of the 1 month Libor (a measure of return in money market securities) over the medium to long term. The fund allocates across sectors and regions with duration that may range from -1 to +5 years
Dynamic investment approach The fund seeks consistent outperformance over money market interest rates, with a focus on preserving capital over rolling 12-month periods. It does this through a dynamic investment approach that shifts risk exposures across a global opportunity set. Diversified sources of return The fund draws on a diverse range of return sources, combining different sectors and risk premiums to seek absolute returns. Low duration investment grade securities form the core part of the portfolio, and together with interest rate views, are expected to be the main driver of returns. The credit component comprises both outright sector views and relative value positions, while the interest rate component is managed dynamically. On average the fund is expected to have a low positive duration position over time. Seasoned investment team The fund is managed by a proven team of fixed income portfolio managers, with collective investment experience of over 60 years, combining global, sector and bottom-up expertise. Having been through a variety of market cycles and macro regimes, the team’s breadth and experience is key to sizing portfolio positions and managing overall risk.
SI 2.75 0.35
5-YR – –
3-YR – –
1-YR 1.64 0.30
Jan ‘18 -0.09 0.04
Source: PIMCO as of 31 January 2018 Past performance is not a guarantee or reliable indicator of future results and no guarantee is being made that similar returns will be achieved in the future All information is for the Institutional Accumulation GBP Hedged share class, which incepted on 29 January 2016. Benchmark: 1 Month GBP Libor Index
PIMCO SELECT UK INCOME BOND FUND: BALANCE YIELD AND CAPITAL PRESERVATION OBJECTIVES
One way in which it differs is through its structural element; there will always be some fixed income securities in the portfolio as a core holding. We will not invest in pure cash as we believe there is a risk premium that can be harvested if the portfolio has exposure to the short maturity bond market. Another aspect that is very important is the explicit recognition of downside risk within the fund. A lot of absolute return bond funds will claim to be fully invested in cash when they feel the market is too risky, or will have five years’ worth of duration when the market is potentially good value. But we do not want to take those two extreme positions because if we are wrong, it could be a very expensive mistake. We take a balanced approach with a core allocation in high quality bonds at all times and allow ourselves the flexibility to tactically allocate to other areas of the market. We have got quite a big opportunity set in the global bond market, and if as a manager we are seeking half of our return from that, then we are placing investors’ cash at less risk. This investment style has been predicated on identifying those core positions in structural trades which we believe can give investors a high Sharpe ratio over a market cycle. It also relates to a belief that for a number of years now, the bond market has segregated and while some parts of the market are structurally rich, others are cheap. This is, we believe, one of the reasons why active bond managers have generally done a better job than active equity managers in recent years. Bond managers have been able to identify these opportunities and made them a core component of portfolios, much like we aim to do with the PIMCO GIS Global Libor Plus Bond Fund.
Q. How does the fund differ from other absolute return bond funds?
The PIMCO GIS Global Libor Plus Bond Fund is an absolute return-oriented bond fund that aims to offer attractive risk-adjusted returns, but retains a key focus on capital preservation. It is a low duration, high quality bond strategy targeting gross returns of LIBOR plus 2.5%. We aim for the portfolio’s core income generating assets – its structural component – to produce around half of the fund’s 2.5% excess return. Therefore, we usually expect around 30% to 40% of the portfolio to be invested in short-dated high quality bonds. These short maturity, high quality bonds offer a good risk-adjusted return over a business cycle, we believe. These bonds tend to be three-to-five-year duration and high quality, providing investors with the highest return per unit of risk. In addition, we source more opportunistic purchases from riskier parts of the market including currency, emerging markets and high yield. We can also trade option strategies if we feel volatility, which has spiked up recently, is too high. We aim to generate attractive risk-adjusted returns from those allocations whilst importantly trying to limit drawdowns to 2% to 3%, even in the event of a severe period of market stress.
Q. What about the PIMCO GIS Global Libor Plus Bond Fund; how does this strategy aim to deliver its return target in today’s challenging market environment?
As yields have come down, if investors simply focus on maintaining the portfolio yield then they have to buy progressively riskier securities at a higher price, which makes their investments most vulnerable when they really don’t want them to be. The one thing investors should not want is to have the riskiest portfolio allocations at the worst point in the interest rate/monetary cycle. This is where the stress testing becomes extremely important in order to ensure the portfolio is robust enough to handle volatility at any point in the market cycle. In other words, this portfolio is specifically positioned to not give investors a serious headache if the market environment changes, allowing investors to own a more stable portfolio overall.
Q. You mention portfolio stress testing; how does this work in practice?
The PIMCO Select UK Income Bond Fund is a high quality bond portfolio – it will always have an investment grade credit rating. It is designed to distribute a stable income stream (targeting an annual distribution yield of 3-4%) with a flat to slightly rising NAV over time. Alongside that, the fund has a firm focus on downside protection. In order to create a stable income stream we would ideally like the NAV to be on a slow, upwards trajectory, but what we do not want is to have a material negative 12-month return. The way we aim to achieve this is to stress test the portfolio through a variety of different scenarios, both historic scenarios (such as the 2008 global financial crisis and 2013 taper tantrum), as well as our own expectations of worst case scenarios. This process is quite important because the strategic bond sector includes a variety of funds, some of which tend to be quite highly correlated with stockmarkets. This portfolio is specifically designed not to be highly correlated with equities, and instead looks to offer some protection in the event that markets go through a greater degree of volatility, in which risk has to be priced differently.
Q. Turning to the funds you manage, and the PIMCO Select UK Income Bond Fund first of all; what are the key aims of this strategy?
We like to focus on the US bond market for the simple reason that it is the furthest through the interest rate cycle and so it is able to offer more yield protection. In other markets, where investors are less well protected and where rate cycles have only just started (the UK for example), the market is still quite rich. The main reason for this is there is a fairly large premium in the bond market due to Brexit uncertainty and the asset class’ safe-haven status, which has continued to depress bond yields. We are a bit more agnostic on the eurozone. This is because the European Central Bank will continue to buy bonds until at least September, and inflation is expected to remain comfortably below target. The market at the moment is priced for the ECB to increase the deposit rate, which is currently -0.4%, to zero towards the second half of next year. This is a fairly reasonable expectation, although the challenge will be inflation which continues to undershoot.
Q. Where are the best opportunities for bond investors seeking yield today?
Different parts of the global economy are at different points in the business cycle. However, in spite of this, we are seeing for the first time in seven or eight years, a synchronised global recovery that central banks are acting on. Markets have priced in two Federal Reserve rate hikes in 2018, but our base expectation is for three to four this calendar year. We also believe two increases are perfectly plausible for the Bank of England. These expectations are creating some volatility, however we do not expect a material backup in bond yields. The main reason for this is that neutral interest rates for most central banks are still very low. The neutral Fed Funds rate is, in nominal terms, in the order of 2% to 2.5%. Therefore, we would expect a modest rise in bond yields in 2018.
Q. What is your outlook for bonds?
Mike Amey, managing director and portfolio manager for the PIMCO Select UK Income Bond and PIMCO GIS Global Libor Plus Bond funds, on how he is approaching the bond universe in today’s atypical market cycle
Source: PIMCO
Why bond flexibility is your friend in 2018
Snapshot: PIMCO GIS Mortgage Opportunities Fund
A flexible mortgage strategy targeting attractive risk-adjusted returns with low correlation to both core bonds and equities. The fund has significant discretion to allocate across all subsectors of the US and global mortgage markets, including agency and non-agency residential and commercial mortgage-backed securities
Balance interest rate and credit risk Securitised markets are often overlooked by bond investors but can provide attractive risk-adjusted return opportunities, with low correlations to equities. The fund seeks to deliver consistent risk-adjusted returns by balancing interest rate and credit risks. Focus on downside protection The portfolio is constructed to be resilient across different interest rate and credit market scenarios. Portfolio managers carefully stress test securities to ensure they can withstand changes in real estate fundamentals, interest rates and consumer credit performance. Flexibility and robust resources The fund’s benchmark-agnostic structure and value-oriented approach allows for dynamic allocation across global mortgage markets. PIMCO’s team of 60+ mortgage and consumer finance specialists are responsible for in-depth bottom-up research, allowing them to identify the most attractive opportunities across this universe.
SI 2.85 0.16
1-YR 2.90 0.16
Jan ‘18 -0.39 0.04
Source: PIMCO as of 31 January 2018 Past performance is not a guarantee or reliable indicator of future results and no guarantee is being made that similar returns will be achieved in the future All information is for the Institutional Accumulation GBP Hedged share class, which incepted on 25 January 2017. Benchmark: 3 Month USD LIBOR (GBP Hedged)
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. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government-agency or private guarantor, there is no assurance that the guarantor will meet its obligations.
• •
CORRELATION OF EXCESS RETURNS TO THE S&P 500 INDEX*
*Source: Barclays, Bloomberg, PIMCO as of 31 January 2018. Past performance is not a guarantee or reliable indicator of future results and no guarantee is being made that similar returns will be achieved in the future. Indices used: Bloomberg Barclays Fixed Rate MBS Index, Bloomberg Barclays Non-Agency CMBS Index, Bloomberg Barclays Investment Grade Corporate Index, Bloomberg Barclays High Yield Corporate Index, Bloomberg Barclays Emerging Markets USD. Based on monthly returns over the last 10 years
Emerging Markets
High Yield Corporates
Investment Grade Corporates
Non-Agency MBS
Agency MBS
0.66
0.65
0.56
0.42
0.34
WHY CONSIDER MORTGAGES NOW?
The complexity of the mortgage market has facilitated consistent opportunities for active managers to extract additional risk-adjusted returns above and beyond what passive exposure to the sector has historically provided. This may be especially true as we enter a period of a less accommodative Federal Reserve and higher interest rate volatility.
The active advantage
Separate return drivers make mortgage credit a potentially attractive diversifier to risk assets. While corporate credit and equity returns are largely driven by corporate balance sheet health, mortgage credit is more often tied to wage growth and house price appreciation.
Diversification
Non-agency MBS, bonds backed by residential loans where the investor depends upon the cash flows from the underlying loans to be repaid rather than a guarantee from a government or other entity, should benefit from a strong US housing market and improving borrower credit quality.
Favourable fundamentals
Agency MBS, bonds that have a guarantee from the US housing agencies, have cheapened over the past two years while most other spread sectors have richened. Moreover, we’re now eight years further into an expansionary cycle, and agency MBS tend to outperform corporate credit in the latter half of expansions (and recessions).
Attractive relative valuations
Where are the best opportunities outside of traditional credit markets?
PIMCO explains how the US mortgage market could provide opportunities for active managers as we enter a new period of potentially higher volatility
After a turbulent 2015 and an inconsistent start to 2016, global credit markets rallied in 2017 – nearly without pause. This robust performance has been well-supported by a strong economic backdrop, rising corporate profits and additional tailwinds from tax reform. Nevertheless, with stretched valuations and an ageing business cycle, we believe investors should consider reducing allocations to the more speculative sectors and focus on securitised markets like mortgage-backed securities (MBS). While MBS rarely take centre stage in UK investors’ portfolios, the asset class can provide a rich opportunity set for active managers to add value and, today, it is one of PIMCO’s highest conviction ideas within global fixed income.
Who We Are
With our launch in 1971 in Newport Beach, California, we introduced investors to a total return approach to fixed income investing. In the 45+ years since, we have continued to bring innovation and expertise to our partnership with clients seeking the best investment solutions. Today we have offices across the globe and 2,200 professionals united by a single purpose: creating opportunities for investors in every environment.
Our Process
Our investment process has evolved over decades and been tested in virtually every market environment. It integrates insights from our Cyclical Forums, which anticipate market and economic trends over the coming six to 12 months, and the annual Secular Forum, which projects trends over the coming three to five years. These top-down views are complemented by bottom-up perspectives from specialists and quantitative analysis of individual securities and portfolio construction. The Investment Committee, which is composed of senior investment professionals, drives decision-making on a daily basis.
Years of Active Management Expertise
46
Global Credit Research Analysts
55+
235+
Portfolio Managers
ROLLOVER OUTER SECTIONS FOR DETAILS
INVESTMENT COMMITTEE
Distills insights from across PIMCO into specific investment guidelines
PORTFOLIO MANAGERS
Develop and implement trade strategies, combining top-down and bottom-up analysis to actively manage portfolios
ECONOMIC FORUMS
Build long-term secular inputs and analysis to set guardrails, and short-term cyclical inputs to help set near-term strategy
TOP DOWN
BOTTOM UP
PIMCO PORTFOLIOS
Source: PIMCO as of 31 January 2018
About PIMCO
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