PIMCO | Global Short Term Strategy

Global Short Term Strategy<spa

Strategy Overview

The PIMCO Global Short Term strategy seeks a higher risk/return profile in order to improve on the returns provided by a typical money market vehicle. The Global Short Term strategy seeks maximum total return, consistent with preservation of capital and a high level of liquidity. The Global Short Term strategy attempts to generate excess returns relative to its three-month US$ Libor benchmark by investing in money market, short maturity and longer-maturity global fixed-income securities on a currency hedged basis.

PIMCO utilizes all major sectors of the bond markets to implement a diversified set of strategies including country, currency and sector rotation, yield curve positioning and duration management. The size and changing dynamics of the global bond market represent a rich opportunity set for investors with tangible diversification and return benefits.

PIMCO Global Expertise

PIMCO is one of the largest active global fixed-income managers in the world today, with over eighteen years of experience investing in global fixed-income markets. The expanding global opportunity set plays well into PIMCO’s strength as we have devoted extensive resources to developing expertise in every fixed-income sector. In addition, PIMCO believes a local presence is essential in order to gain a better understanding of macroeconomics, financial flows, less liquid sectors and to participate in the government auctions and new issuances taking place in the local time zone. We have therefore established our portfolio management operations in Newport Beach, Munich, London, Tokyo, Singapore and Sydney. These specialists on the ground provide valuable strategy input as well as insights into local and regional macroeconomic developments, and policy reaction functions. They also facilitate the efficient execution of investment strategies in their local markets, which we believe to be an integral component to delivering consistent outperformance in our Global Short Duration Strategy.

Applications for the Global Short Duration Strategy

PIMCO Global Short Duration strategy has a wide variety of practical applications. This strategy is designed for investors looking for the potential to outperform traditional money market vehicles while limiting risk and maintaining a high degree of liquidity. It may be an ideal investment for liquid asset pools such as:

Strategic cash allocations
Operating cash balances
Insurance reserves

Investment Philosophy

PIMCO investment philosophy is focused on a longer-term horizon, which enables us to focus beyond holding only shorter-term, low risk, assets such as government bills or other money market instruments. An expansive global fixed-income platform seeks to identify the most attractive and diverse set of investment ideas from the global opportunity set. Global Short Duration portfolios are structured with a keen focus on risk to include a broad variety of high quality securities that can provide attractive yields and the benefit of diversification.

Key principals of our global investment philosophy include:

PIMCO emphasises diversified sources of added value. In contrast to some managers, who prefer to take a few large exposures, PIMCO utilizes multiple strategies to attempt to generate consistent performance. We also use a broader range of instruments to optimise the efficiency of strategy implementation.
Our country bond allocation process focuses on economic and policy fundamentals as the key determinants of value along a country’s yield curve. We seek to identify attractive countries based on a thorough analysis of macroeconomic fundamentals, real yields and policy reaction functions.
We seek to take advantage of structural inefficiencies by focusing on structural positions to generate excess returns.
We separate the portfolio’s bond and currency decisions. Since hedging tools are efficient, owning a particular bond does not obligate us to own the underlying currency. Tactical currency positions are deliberately sized given the volatility of currencies.
PIMCO uses advanced, proprietary, quantitative tools to measure and monitor risk. This is crucial in monitoring the impact of specific positions on the overall portfolio.

Global Investment Process Overview

Global Portfolio Team / Strategy Secular Forecast

3-5 year focus
Annually
All investment professionals

Cyclical Forecast

3-12 month focus
Quarterly
All investment professionals

Formal Global Strategy Meeting

Quarterly
Structure Model Portfolio

Ongoing Research Analysis

Weekly and daily qualitative discussions
New/existing positions examined
Risk measures utilized

Portfolio Monitoring

Daily market interaction
Quantitative tools

Sources of Added Value

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 Investment Committee meets several times a week to review global opportunities and monitor existing global holdings. We examine opportunities in four key areas: international 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 return opportunity 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

Fundamental to the process of risk control are the analytical tools which are 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 Optimiser 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 gives a more accurate measure of individual security and portfolio risk than traditional duration and convexity analysis would allow.

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 as well as those that are not.

How To Invest

Separate Accounts

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. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, and inflation risk. 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 and each investor should evaluate their ability to invest for a long-term especially during periods of downturn in the market. Diversification does not ensure against loss.

LIBOR (London Interbank Offered Rate) is the rate banks charge each other for short-term Eurodollar loans. 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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