PIMCO | All Asset Strategy

The All Asset Strategies are designed to fit a variety of investor needs and are therefore used by individuals and institutions to address a range of goals within a portfolio, including but not limited to the following:

Inflation Hedging Solution: If you’re seeking to increase the allocation to inflation hedging investments but are concerned with low yields offered by Treasury Inflation-Protected Securities (TIPS), the volatility of commodities and real estate or the illiquidity associated with other real assets, then the All Asset Strategies may offer a compelling opportunity to hedge inflation risk, capture high real return potential and do so with modest volatility.

Alternative to Traditional Fixed Income: If you’re seeking an investment that has bond-like characteristics in terms of total volatility and correlation to other assets, yet has greater flexibility to navigate changing global interest rates and yield spreads, then the All Asset Strategies may offer a compelling opportunity to replace traditional fixed income with a more diversified and adaptable allocation.

Equity Replacement/Diversifier: If you’re seeking a higher level of returns, one that has often been associated with equities, yet want to diversify – not amplify – the equity risk already in your portfolio, then the All Asset Strategies may offer a compelling opportunity to pursue equity-like returns with reduced volatility and downside risk, and with diversification benefits.

Tactical Asset Allocation Solution: If you’re evaluating multi-asset class strategies that offer outperformance potential through diversification and tactical allocation decisions, then the All Asset Strategies may offer a compelling solution in that they combine a truly broad opportunity set, active management alpha potential in each and a disciplined investment process to tactically manage the mix in a single investment.

In addition to the All Asset Strategies, PIMCO offers expertise across a range of other real return products that seek to provide consistent after-inflation returns and portfolio diversification to meet investor needs:

Inflation-Linked Bonds: Portfolios benchmarked to TIPS or global ILBs. These core real return assets can provide a direct return linkage to actual inflation, in addition to liquidity and low credit risk.
Commodities: Portfolios benchmarked to diversified commodity indices. These investments are designed to hedge against inflation “surprises,” and historically have provided strong diversification characteristics.
Real Estate: Portfolios benchmarked to an index of Real Estate Investment Trusts (REITs). These real return equities provide returns related to real estate markets with the potential for high current income.
Diversified Real Asset Solutions: Portfolios that provide concurrent exposure to the three key real return asset classes – TIPS, commodities and real estate – and that actively manage the mix in an effort to enhance real returns.

The PIMCO All Asset Strategies invest in a broad spectrum of underlying investment strategies, which include global bonds, global stocks, commodities and real estate. While the All Asset Strategies can invest in almost any PIMCO strategy in an effort to achieve their return and risk objectives, the following is a representative list of the opportunity set:

Short-Term Strategies Short-Term Low Duration Floating Income	U.S. Bond Strategies Total Return Investment Grade Corporate Mortgage-Backed Securities Long-Term U.S. Government
Alternative Bond Strategies Global Bond / Global Advantage Emerging Markets Bond Emerging Local Bond Diversified Income Unconstrained Bond	Inflation-Related Strategies Real Return / Real Return Asset (TIPS) CommodityRealReturn® / CommoditiesPLUS RealEstateRealReturn Strategy
Long Equity-Related Strategies StocksPLUS® / StocksPLUS® Total Return International StocksPLUS® Total Return EM Fundamental IndexPLUS™ Total Return PIMCO Pathfinder™	Alternative Equity-Related Strategies Convertible Fundamental Advantage Total Return StockPLUS® Short Strategy

The asset allocation decisions within the PIMCO All Asset Strategies are actively managed by Research Affiliates, LLC, a sub-advisory firm founded by Rob Arnott that possesses demonstrated expertise in asset allocation. The investment process evaluates four essential “building blocks” of returns and is complemented by a qualitative fifth step to help ensure a robust outcome.

1) Potential for Long-Term Real Returns: Each underlying investment is evaluated for its long-term real return potential by assessing its current yield and expected income growth, net of inflation.

2) Potential Value Added by PIMCO: Since each underlying investment is actively managed by PIMCO, an adjustment is made to the return estimate for that asset class based on the consistency and level of excess return that the respective PIMCO portfolio manager has historically delivered.

3) Potential for Valuation Change: Key valuation metrics are evaluated for each underlying investment in order to assess absolute and relative value, the likelihood of a valuation change and to what extent that alters the near-term return potential for that investment.

4) Impact from Economic and Technical Factors: Additional inputs are considered to refine return and risk forecasts, such as the current stage of the business cycle, the transition probability to the next stage and, where relevant, select technical indicators such as lead, lag, momentum or mean reversion factors.

5) Subjective Considerations: Experts at PIMCO and Research Affiliates possess a wide depth and breadth of experience across various global asset classes. Formally once a month, and informally as required, key personnel at both firms engage in substantive dialogue to identify any factors that might have been missed by the quantitative process and if those warrant a modest subjective adjustment to the model-driven allocations.

Sources of Added Value

Investors need high real returns in order to meet their return goals, hedge inflation risk and grow the purchasing power of their savings. Going forward, this level of real returns may not be achieved by conventional allocations centered on mainstream stocks and bonds.

With that in mind, the All Asset Strategies combine three sources of added value in an effort to achieve their CPI + 5% or CPI + 6.5% benchmarks. First, they expand the investment opportunity set far beyond mainstream stocks and bonds, so that investors can access a wider range of return-generating and inflation-hedging sectors. Second, they incorporate the potential for excess returns (alpha) above passive indexes in each underlying strategy through PIMCO’s active management expertise. Third, they incorporate the tactical asset allocation decisions of Research Affiliates, which uses a demonstrated, disciplined process aimed at both enhancing returns and mitigating risk by changing the mix of underlying strategies over time.

About the Sub-Advisor

The All Asset Strategies are sub-advised by Research Affiliates, LLC, an advisory firm founded and majority-owned by Robert Arnott. He is author of more than sixty articles appearing in periodicals like the Financial Analysts Journal, the Journal of Portfolio Management, and the Harvard Business Review. He has served on the editorial boards of the Journal of Portfolio Management, Journal of Investing, and Journal of Wealth Management, as a founding member of the Chairman’s Advisory Council of the Chicago Board Options Exchange and on the product advisory boards of the Chicago Mercantile and Toronto Stock Exchanges. He co-edited the first and second editions of Active Asset Allocation (Probus Press; 1988, 1992) and Style Management (1996, 1998).

He has contributed chapters to numerous books, including some of the core readings for the CFA program. Mr. Arnott has a reputation as a practitioner for creating innovative investment products. He previously served as equity strategist at Salomon Brothers, and as president and chief investment officer at TSA Capital Management, and also served as chairman of First Quadrant. He graduated summa cum laude from UC Santa Barbara in economics, applied mathematics, and computer science.

Risk Management/Controls

PIMCO and Research Affiliates collaborate to help ensure that investors in the All Asset Strategies benefit from the significant commitment to risk management by both of these organizations. PIMCO, which has extensive asset management experience, controls the operational risk of the All Asset portfolios as well as the investment and operational risk of all underlying strategies. Research Affiliates, which serves as the asset allocation sub-advisor, controls the investment risk associated with asset allocation decisions.

A summary of key investment guidelines for the All Asset and All Asset All Authority Strategies is as follows:

	All Asset Strategy	All Asset All Authority Strategy
Maximum investment in a single underlying strategy	50%	50%
Maximum investment in “Inflation-Related Strategies”	75%	75%
Maximum investment in “Long Equity-Related Strategies”	50%	67%
Maximum investment in StocksPLUS® Short Total Return Strategy¹	0%²	20%
Maximum use of leverage³	0%⁴	33%

¹ The StocksPLUS® Short Total Return Strategy seeks a return that tracks and exceeds the inverse return of the S&P 500
² The strategy does not intend to invest in StocksPLUS Short Total Return Strategy.
³ Leverage is obtained in the All Asset All Authority Strategy via a line of credit that may be used on a tactical basis to acquire additional exposure to targeted underlying strategies. Measured as a percent of gross assets.
⁴ The All Asset Strategy does not intend to use leverage to amplify exposures of underlying strategies. However, certain transactions within the underlying strategies, such as the use of derivatives, where permitted, may give rise to leverage within those strategies, causing them to potentially be more volatile than if they had not been leveraged.

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