"A refined process, stellar management, and abundant resources earn a Morningstar Analyst Rating of Silver for Pimco GIS Income's Institutional shares; other share classes are rated Silver, Bronze, and Neutral.
Dan Ivascyn and Alfred Murata have leveraged Pimco’s bountiful analytical and human resources across market sectors, including mortgage and real estate specialists. This offering employs Pimco’s robust mix of big-picture research and bottom-up analysis to focus on generating consistent payouts in addition to strong performance."
- Eric Jacobson, strategist at Morningstar
1. To what do you attribute your strategy’s success in 2021?
The PIMCO Income Strategy continued to deliver on its objectives amidst broader volatility in fixed income markets in 2021. The strategy’s flexible, multisector approach helped the portfolio navigate market risks including duration and credit risks over 2021, a year when traditional bond benchmarks faced challenges, such as the Bloomberg US Aggregate which was down -1.5%.
We allocated to areas of the global bond markets where we saw the best risk-adjusted opportunities to enable us to meet our objectives. The strategy added value across its spread and currency strategies during the year. As spreads tightened, allocations within both securitized and corporate credit sectors were key contributors. Within investment grade credit, we focused on bottom-up security selection and favored the financial sector. In high yield, we benefitted from idiosyncratic opportunities like bank capital or rising stars. In securitized debt, returns were driven by our allocation to non-Agency Mortgage Backed Securities which have been resilient and attractive from a risk/return perspective. Our key currency positions throughout the year also delivered positive results.
2. What are the key ingredients to your strategy’s longer-term accomplishment?
The PIMCO Income Strategy employs a multisector approach that provides us with the flexibility to invest across the entire global bond market and tactically manage duration risk. We take a long-term view but can also be active in responding to opportunities and overshoots created by market volatility.
The strategy balances yield and capital preservation investment objectives, by allocating to high-quality securities that should perform well during an economic slowdown and higher yielding securities that should remain resilient even in negative economic scenarios. We seek consistent income distribution as a driver of total returns over time.
To withstand market volatility, we emphasize risk management and the “bend but don’t break” philosophy where we expect price volatility, but attempt to avoid permanent economic loss. The focus on high quality and senior secured bonds helps diversify during periods of market stress. We also focus on liquidity by investing in assets that can be easily bought and sold in times of stress.
Last but not least, PIMCO benefit from our global scale and depth of sector-specific resources to source new opportunities across the global fixed income universe, negotiate directly with borrowers and minimize transaction costs across markets.
3. What are the challenges that you see as an active manager going forward?
Significant uncertainty surrounds the economy, inflation, and global geopolitical landscape. We expect the bouts of heightened volatility we have seen recently to continue throughout 2022 as monetary policymakers around the world remove support, possibly driving slight to moderate increases in interest rates. Inflation has lingered much longer than most market participants anticipated, and the near-term inflation outlook remains uncertain. We believe inflation will trend lower later this year, but the upside risks are elevated.
And that’s a great environment for an active asset manager that has sufficient flexibility to respond and react to what we think is going to be this heightened period of uncertainty in a period where markets are not that liquid, and where we may see overshooting of fundamentals.
In this current environment of elevated risk, we continue to utilize the strategy’s flexibility to emphasize bottom-up opportunities and look to diversify and seek responsible sources of income across regions and sectors globally, while focusing on quality and maintaining liquidity.
