PIMCO | Global Bond Strategy

Global Bond Strategy

Strategy Overview

PIMCO global bond strategies are actively managed to maximize total return potential while minimizing any increase in risk relative to the market benchmark. The dynamics of global fixed income markets represent a rich opportunity for tangible diversification and potential for better risk-adjusted returns over time.

Applications for Global Bond Strategies

An allocation to PIMCO global bond strategies may be beneficial as part of a diversified portfolio. Portfolios invested across many global bond markets may have lower volatility relative to portfolios consisting only of domestic bonds, and can provide a hedge against risks in other asset classes, such as equities, particularly in times of economic uncertainty. An allocation to a PIMCO global bond strategy can also be used in an effort to help to preserve investors’ capital, provide a steady source of income and, due to the increased opportunity set afforded by the global markets, potential for capital gains.

Sources of Added Value

Our approach seeks to outperform a broad fixed income benchmark (e.g., JPMorgan GBI Global Index and PIMCO Global Advantage Bond Index) on a consistent basis, while maintaining overall risk similar to the index. PIMCO’s approach to global bond investing has three key principles:

Multiple Strategies – We believe that a diversified approach to adding value should deliver more consistent results, so we employ multiple concurrent strategies and take only moderate risk in each, thereby seeking to reduce risk of poor performance arising from any single source. Strategies utilized include duration management, yield curve or maturity structuring, sector rotation and all bottom-up techniques, including those driven by our in-house credit and quantitative research.
Long-Term Orientation – We believe that focusing on long-term, secular trends offers the greatest opportunity to add value relative to the overall market, which is largely preoccupied with pricing in short-term factors. By maintaining a disciplined focus on our secular views, we are better able to identify long-term value and prevent our trading decisions from being overly influenced by emotion and short-term market sentiment.
Broad Universe – We are committed to implementing our approach by selecting from a broad universe that includes all conventional fixed income sectors as well as newer, less traditional sectors, including high yield, emerging market debt and inflation-linked bonds. We believe that a broad opportunity set not only provides us with greater potential to enhance returns, but also enables us to reduce portfolio risk through greater diversification.

PIMCO divides value-added strategies into two groups: macro, or top-down strategies, and micro, or bottom-up security-specific strategies. With the firm’s secular and cyclical analysis as a foundation, the global portfolio management team works with PIMCO’s global investment committee to review global opportunities and monitor existing global holdings. We examine opportunities in four key areas: global bonds, currencies, cash management and relative value strategies. This is important because global markets will often offer substantial opportunities in one area and very few in another. The ability to use a variety of tools may increase returns as well as reduce overall risk relative to the benchmark, lessening the need to rely on any one area for the majority of the portfolio’s performance.

Risk Management/Controls

Fundamental to the process of risk control are the analytical tools available to measure and monitor volatility in the portfolio. PIMCO has invested considerable resources in developing its own proprietary models to help in this analysis. These models include our Bonds Under Management report, which gives extensive summary information of portfolio holdings; a Risk Optimizer, which indicates an optimum portfolio structure for a set of expected returns, volatilities, and correlations; and our own proprietary Level, Slope and Curvature model, which was designed to give a more accurate measure of individual security and portfolio risk than traditional duration and convexity analysis.

Extensive use of analytical models allows us to leverage our investment professionals and provides a dispassionate check on our investment decisions. It also permits us to perform attribution analysis to determine which strategies are consistently adding value.

How To Invest

Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. 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 certain risks including market, interest-rate, issuer, credit, and inflation risk. 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. Inflation-linked bonds (ILBs) issued by a government are fixed-income securities whose principal value is periodically adjusted according to the rate of inflation; ILBs decline in value when real interest rates rise. PIMCO strategies utilize derivatives which 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. 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.

JPMorgan GBI Global is an unmanaged market index representative of the total return performance of major world bond markets. The PIMCO Global Advantage Bond Index (GLADI) is a diversified global index that covers a wide spectrum of global fixed income opportunities and sectors, from developed to emerging markets, nominal to real assets, and cash to derivative instruments. Unlike traditional indices, which are frequently comprised of bonds weighted according to their market capitalization, GLADI uses GDP-weighting which puts an emphasis on faster-growing areas of the world and thus makes the index forward-looking in nature. It is not possible to invest directly in an unmanaged index.

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.

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