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Sabrina C. Callin
Many people know PIMCO as a leading manager of bonds. But on 14 March, Lipper named PIMCO the best large equity manager in the U.S. for the fourth year in a row. We are honored by this recognition, which reflects the success of PIMCO’s StocksPLUS suite of strategies in delivering value to equity investors. Introduced in 1986, these strategies seek to combine the best of what passive indexing and active management each attempt to deliver. They replicate passive exposure to equity indexes via derivatives, an approach that requires only a small fraction of the notional value of this exposure. The capital that remains is then invested in an actively managed portfolio of fixed income securities – the PLUS component – with the potential to enhance returns.The latest evolution in this strategy suite will occur on 22 March, when PIMCO will change the names and recommended guidelines of a majority of these strategies. The PLUS component will now be labeled either AR or Absolute Return, rather than TR or Total Return. For example, the StocksPLUS Total Return suite of strategies will become the StocksPLUS Absolute Return suite of strategies.As Sabrina Callin, a managing director who oversees PIMCO’s StocksPLUS products, explains, these changes are meant to reflect a more flexible approach to the strategies’ fixed income management. There is no change, however, to the methods of replicating equity index exposures, and we expect to maintain a similar risk profile within the fixed income portfolios. Q: How has PIMCO succeeded with the StocksPLUS suite of strategies?A: The equity derivatives, typically futures or swaps, are priced such that investors receive the total return of the equity index in exchange for a money-market-based financing rate. As such, if PIMCO outperforms this money market cost, then it should translate directly into equity market outperformance. Our success relies on PIMCO’s active fixed income management skill set and the inherent diversification benefits from exposure to bonds. Our Fundamental IndexPLUS AR Strategies, which replicate a fundamental equity index that weights companies based on dividends, book value, cash flow and sales – rather than market capitalization – provide an additional way to gain equity exposure coupled with the diversification of the fixed income portfolio. Q: Could you please discuss the history of the strategies?A: In the original version of the strategy the PLUS component, which serves as collateral for equity derivatives, is an actively managed short-term bond portfolio. However, in response to demand from investors for a version that seeks a higher return, we introduced StocksPLUS Total Return in 2002. Rather than a 0-1 year short duration fixed income portfolio, the StocksPLUS Total Return collateral portfolio has attributes more commonly associated with core bond portfolios, like our Total Return strategy, albeit with a broader duration range. Since then, the StocksPLUS TR suite has expanded to include cap-weighted indexes with large cap, small cap, emerging market and international equity strategies, and the fundamental and related market-neutral indexes designed by Research Affiliates.
The Lipper Fund Best Group over 3 Years Large Equity award (2010, 2011, 2012, 2013) recognizes the investment adviser for the management of its U.S. mutual funds that have delivered consistently strong risk-adjusted performance, relative to peers.
Past performance is not a guarantee or a reliable indicator of future results. Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, and inflation risk; investments may be worth more or less than the original cost when redeemed. 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.Equities may decline in value due to both real and perceived general market, economic, and industry conditions. 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. Diversification does not ensure against loss. Investors should consult their financial advisor prior to making an investment decision.
Beginning 22 March 2013, in managing the strategy’s investments in Fixed Income Instruments, PIMCO will utilize an absolute return approach; the absolute return approach does not apply to the equity index replicating component of the strategy.
This material contains the 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 and YOUR GLOBAL INVESTMENT AUTHORITY are trademarks or registered trademarks of Allianz Asset Management of America L.P. and Pacific Investment Management Company LLC, respectively, in the United States and throughout the world. ©2013, PIMCO.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Pacific Investment Management Company LLC, 840 Newport Center Drive, Newport Beach, CA 92660, 800-387-4626. ©2014, PIMCO.
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