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In today’s world, investors face an uncertain economic environment, in which structural headwinds drive against future growth, and where the risks of inflection points that can derail progress, remain. In this environment of heightened volatility and macroeconomic risk, investors are increasingly looking for equity solutions that are designed to deliver long-term capital appreciation while also seeking to manage downside risk.
Through fundamental, bottom-up security selection, we seek to identify undervalued stocks with more upside potential than downside risk, and to generate attractive excess returns with lower volatility than the equity market, over full market cycles.
The portfolio is constructed using a “push” model of investment recommendation, in which analysts conduct their own research and then present ideas to the portfolio managers. This is consistent with having a team of highly experienced analysts, each developing investment ideas. The portfolio managers make the final investment decision, evaluating an idea based on both the strength of the investment thesis and fit within the portfolio. Positions are included in the portfolio based on research conviction, with securities with the most upside potential and least downside risk, being assigned the highest weights. Positions are then reduced as the price approaches intrinsic value, and exited entirely once the price reaches intrinsic value, or if the investment thesis is broken.
Our unconstrained approach also incorporates tactical investments in special situations and market hedges. Special situations investments, such as merger arbitrage, typically have low to moderate correlation with equity markets. As such they can complement our equity investments to potentially improve the strategy’s overall risk and return profile. Similarly, our use of market hedges can help provide downside risk mitigation, which over time may lead to higher compounding of returns.
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. Investments in value securities involve the risk the market’s value assessment may differ from the manager and the performance of the securities may decline. Investing in distressed companies (both debt and equity) is speculative and may be subject to greater levels of credit, issuer and liquidity risks, and the repayment of default obligations contains significant uncertainties; such companies may be engaged in restructurings or bankruptcy proceedings. 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.Investments in companies engaged in mergers, reorganizations or liquidations may involve special risks as pending deals may not be completed on time or on favorable terms. 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.
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, 650 Newport Center Drive, Newport Beach, CA 92660, 800-387-4626. ©2014, PIMCO.
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