The $8.3bn (£5.8bn) Pimco Global Bond fund is a diverse, actively managed portfolio of global fixed-income securities that, according to portfolio manager Andrew Balls, aims to serve as a “high-quality anchor allocation for investors’ broader portfolios”.
Mr Balls, chief investment officer of global fixed income at Pimco, notes that while the vehicle is flexible and “able to invest in any and all fixed-income markets, it will remain a fund that provides ballast against risk-asset bear markets”.
Mr Balls manages the fund with the support of a large team of global portfolio managers and analysts, and adopts an approach that is “fully integrated into the broader Pimco investment process”.
He explains: “This includes Pimco’s forum process whereby investment professionals, aided by outside perspectives of invited speakers, formulate a macroeconomic outlook over both the long-and short-term investment horizons; investment committees, which translate the firm’s macroeconomic views into investment positioning; and, finally, Pimco’s speciality desks, which carry out trading, research and bottom-up issue selection within their respective areas of expertise.”
The average duration of the fund will normally vary within plus or minus three years of the benchmark, according to the factsheet. The fund’s R retail sterling-hedged share class sits at a risk-reward level of three out of seven, with ongoing charges of 0.76 per cent.
Mr Balls points out that Pimco’s process is designed to form a view on macroeconomic factors – inflation pressures, central bank policy – and then translate that view into investment implications. As a result, he notes the portfolio “is continuously evolving in response to economic fundamentals as well as market pricing”.
But he adds: “As a long-term value investor, positions are typically taken for an extended time. For example, the portfolio began investing back into agency mortgage-backed instruments in the second half of 2015, a sector which the portfolio had been void of for some time. The portfolio is now closer to neutral on this sector having been underweight.”
| EXPERT VIEW - Jon Beckett, consulting CIO and financial author |
| The Pimco global bond team has been quietly grinding out solid returns, difficult when there was such a run to credit but made more challenging by the post-(Bill) Gross effect. However, the franchise has managed to accrue more than $7bn (£4.9bn) and so is hardly a minnow. It adopts a diversified exposure approach and will use spread to “capture a yield premium” but is reined in by a high-quality anchor allocation and a maximum high-yield threshold of 10 per cent. The team rotates both duration/curve country-country and spread at a sector level. The team overlays an active currency strategy to enhance the US dollar strategy’s returns. For global bond buyers looking to invest primarily in investment-grade US dollar bonds with big buying power, this is worth a look. |
For the five years to April 15 2016 the R income sterling hedged share class of the fund delivered a 31.4 per cent return compared with the IA Global Bond sector average of 19 per cent, data from FE Analytics shows.
Shorter term performance has lagged, however, with the fund’s one-year return to April 27 2016 of 0.8 per cent falling behind the sector average of 2.8 per cent and the Barclays Global Aggregate Sterling Hedged index gain of 2.5 per cent.
The manager acknowledges that long-term performance has been strong, in spite of “many bouts of volatility, from the eruption of the European crisis to the collapse of oil prices”.
“Nevertheless, the fund has outperformed as it maintains its flexibility to shift toward the most bond-friendly markets in the world, wherever they may be, focusing on pockets of value premiums instrument by instrument,” says the manager.
In particular, he points to currency strategies, which are normally “a modest driver of performance”, as having had a positive effect on performance in recent years. He explains: “Policy divergence and the significant US dollar rally against the euro and Japanese yen resulted in strong positive outperformance. A preference for financial issuers, offset by underweights to industrial and utility issuers, within the investment-grade corporate market also worked well.”
He adds: “An overweight to the periphery of Europe, first built up in mid-2012, [also] contributed [to performance] although these positions were more recently scaled down.”
On the flip side, the manager acknowledges that duration positioning in safe-haven markets, including the US and Germany, had a negative effect on the fund. “We scaled down duration exposure. The latest rally in these yields resulted in a negative contribution. We also began buying US Treasury inflation-protected securities as breakeven inflation declined to levels we considered unreasonable. While this position has been working well recently, it was a modest drag in past years.”
Looking ahead, the manager suggests the risk of recession in any of the major economies in 2016 is lower than markets might be anticipating. But he admits the team is paying close attention to three key swing factors: China, commodities and central bank responses. “Valuations should be underpinned by central banks, but there are questions about their interventions’ effectiveness. For these reasons, we continue to expect bouts of volatility.”
