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In an evolving, multi-speed world, PIMCO believes that investors should increase their portfolio exposure to emerging markets (EM) investments. EM investments, whether in equities, debt or currencies, offer potential return and diversification benefits relative to comparable investments in developed economies. While many investors are looking to take advantage of these favorable characteristics, they may be simultaneously challenged to assess relative value opportunities across and within these EM asset classes while also managing risks that are unique to EM investing as a whole. The PIMCO Emerging Multi-Asset Strategy is designed to provide a comprehensive portfolio solution for investors seeking diversified exposure to the broad emerging markets opportunity set. This includes EM equities, local and external EM sovereign debt, EM corporate bonds and EM currencies. It can also include the tactical use of commodities to express targeted EM investment themes. PIMCO actively manages the overall asset allocation as well as the underlying exposures, in an effort to enhance returns relative to a static, passive approach. PIMCO also seeks to enhance returns by incorporating tail-risk hedging strategies, which are designed to limit the impact of periodic market stresses that may affect emerging economies. By combining these potential benefits, Emerging Multi-Asset can serve as a compelling comprehensive investment for those seeking to participate in the upside potential of emerging markets while mitigating downside risk.
PIMCO designed the Emerging Multi-Asset Strategy to serve as a comprehensive EM portfolio solution for investors, one that seeks to simultaneously manage the opportunities and challenges associated with investing in emerging markets. Beyond simply providing exposure to the key EM asset classes – equities, local sovereign debt, external sovereign debt, corporate debt, currencies and tactical commodities exposure – the Strategy also incorporates three distinguishing sources of active management:
By combining these elements into a single portfolio, the Strategy is able to offer investors a comprehensive solution that combines the strategic exposure across EM asset classes that investors desire with a robust risk management return-seeking framework, as outlined in Chart 1 below.
The investment process for Emerging Multi-Asset builds off the forward-looking views produced by PIMCO’s secular and cyclical investment process. This process begins with PIMCO’s three- to five-year secular outlook, which identifies key longer-term trends, risks and opportunities across the global economy. It is supplemented by PIMCO’s cyclical outlook, which specifies a near-term forecast by assessing drivers and risks to economic growth and inflation in key regions globally, including EM. PIMCO’s Investment Committee then combines these “top-down” macro views with “bottom-up” inputs from the firm’s sector and regional specialist portfolio management teams. The result is a series of forward-looking investment views regarding the attractiveness of key global risk factors, which can be expressed across and within a range of asset classes.
Building off this firm-wide process, the Emerging Multi-Asset portfolio management team then applies a three-step investment process specific to the Strategy:
By combining these three components of the investment process – “top-down” asset allocation, “bottom up” alpha strategies, and “tail-risk” hedging – PIMCO seeks to better manage risk and deliver incremental returns over a passive buy-and-hold investment approach.
A four-person portfolio management team is responsible for integrating PIMCO’s investment views and constructing the portfolio. Curtis Mewbourne serves as the portfolio manager responsible for overall asset allocation decisions and alpha strategies. Masha Gordon leads the active EM equity team, while Ramin Toloui and Michael Gomez manage EM external debt and EM local debt, respectively. The Strategy’s four person portfolio management team integrates seamlessly with PIMCO’s broader asset allocation and tail-risk hedging teams to ensure alignment with firm-wide views and consistency with other PIMCO asset allocation strategies, to the extent applicable.
Investors can incorporate the Emerging Multi-Asset Strategy in their existing asset allocation portfolios in multiple ways.
Past performance is not a guarantee or a reliable indicator of future results. 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. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Sovereign securities are generally backed by the issuing government, obligations of U.S. Government agencies and authorities are supported by varying degrees but are generally not backed by the full faith of the U.S. Government; portfolios that invest in such securities are not guaranteed and will fluctuate in value. Commodities contain heightened risk including market, political, regulatory, and natural conditions, and may not be suitable for all investors. Tail risk hedging may involve entering into financial derivatives that are expected to increase in value during the occurrence of tail events. Investing in a tail event instrument could lose all or a portion of its value even in a period of severe market stress. A tail event is unpredictable; therefore, investments in instruments tied to the occurrence of a tail event are speculative. Derivatives and commodity-linked 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. Commodity-linked derivative instruments may involve additional costs and risks such as changes in commodity index volatility or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Investing in derivatives could lose more than the amount invested. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Diversification does not ensure against loss.
This material contains the current 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.
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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