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Virginie Maisonneuve recently joined PIMCO to lead its global equity business. In the following interview, the Deputy CIO and portfolio manager outlines her approach to managing and expanding the company’s equity offerings, and discusses the outlook for markets.
Q: Why did you join PIMCO? Virginie Maisonneuve: A few reasons. First, I believe that PIMCO has particular strengths suited to fostering a strong equity platform through the leveraging of its intellectual capital and partnership corporate culture as well as its macro framework, network of credit analysts and expertise in derivatives. I see equities markets going forward continuing to be largely impacted by volatility and macro events. As a bottom-up equity investor with a process built around long-term analysis, it is essential to frame stock selection within a coherent macroeconomic and thematic framework and PIMCO’s resources in this area will be invaluable. Second, although it is much smaller than its bond business, I believe the current equities offerings at PIMCO are well positioned and create an excellent foundation to build from. The final reasons: PIMCO’s robust global client service and commitment to build its Global Investment Authority beyond bonds as it has done in recent years.
Q: How will your leadership of the equity portfolio management team integrate with PIMCO’s investment process? Maisonneuve: Let’s be frank: Bonds are very different from equities. Yet they are not polar opposites; both require investment acumen and, I believe, a solid understanding of the investment framework companies operate in (macroeconomic and thematic analysis). Also, fixed income credit analysis is similar to equity analysis, and PIMCO has a deep bench of credit experts.
The equities team will integrate with PIMCO’s investment process in several ways: first, by participating in the company’s secular and cyclical forums. Second, as a Deputy CIO, I will also provide input to the firm’s Investment Committee – though will not be a standing member as I need to dedicate my time to equities and chairing the weekly global equity investment strategy meetings (our equity committee). My goal is for the committee to facilitate partnership, with senior members of the equity team rotating leadership of meetings and discussions, resulting in a spectrum of insights on sectors and regions and various investment style perspectives. From an operational standpoint, the equity researchers and analysts collaborate and share ideas with the fixed income credit research group.
For over 26 years, I have approached equity investing with an assessment of business quality and the combination of valuation and sustainable long-term growth potential. Furthermore, an understanding of key long-term themes is crucial to the proper assessment in my opinion of the operating environment companies have to deal with and therefore to our analysis. I prefer a team-based structure, with a very strong culture of sharing ideas, of challenge and debate.
Q: What is PIMCO’s outlook for equity markets? And where are the opportunities? Maisonneuve: Being based in London, my counsel to investors at this current stage in the market is to mind the gap (as we hear on the underground platforms). The gap alludes to a switch from a paradigm of quantitative easing supporting recovery from a deep correction to a paradigm of market fragmentation and transition. This next phase is marked by substantial uncertainty and investors looking for industry leadership amid conflicting data and opinions.
The transitions abound from China morphing from investment-led to consumer-driven economic growth, to Japan attempting to replace deflation with inflation and gather momentum around the “3rd arrow” led by Mr. Abe, to the U.S. Federal Reserve stepping back from extraordinary market intervention and the emerging markets dealing with the consequences.
By fragmentation, I mean the partial de-synchronization of the global economy. Picture a train with the U.S. in the lead with somewhat improving employment and growth, while Europe continues to lag. The Fed wants to taper, while Europe needs to increase quantitative easing. Emerging markets need to raise interest rates to attract capital, but that is a headwind to growth. The train cars are unhitched and drifting apart.
So what’s the potential upshot for investors, considering equity valuations have risen, albeit from depressed levels, over the past 18 months? While equity valuations have increased, they are generally not rich within a historical context. Low interest rates should help performance going forward in what we expect to be an environment of subdued growth and moderate inflation.
All things considered, there are opportunities, but investors should be very selective. Seek quality stocks, and consider that in a period of heightened uncertainty some good names can sell off. I expect 2014 will come to be known as a year for good stock picking.
Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. 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. 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. Dividends are not guaranteed and are subject to change and/or elimination. 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. Investors should consult their investment professional prior to making an investment decision.
This material contains the opinions of the author but not necessarily those of PIMCO 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. ©2014, 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, 650 Newport Center Drive, Newport Beach, CA 92660, 800-387-4626. ©2015, PIMCO.
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