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The strategy is designed to offer the traditional benefits of a core bond approach – capital preservation, liquidity and diversification – but with higher alpha potential and the opportunity to mitigate downside risk to a greater degree than what is reasonably possible from traditional active fixed income management approaches.
The PIMCO Unconstrained Bond Strategy is governed by PIMCO’s investment philosophy and unique, disciplined secular investment process, which focuses on long-term economic, social and political trends that may have lasting impacts on investment returns. Moreover, over shorter cyclical time frames, the unconstrained nature of the strategy allows PIMCO to take on more risk when PIMCO identifies tactical opportunities, and it allows for reduction and diversification of risk at times when the outlook may be more challenging for traditional fixed income benchmarks.
The PIMCO investment process starts with the PIMCO annual secular forum during which the firm develops its 3- to 5-year outlook for the global economy and interest rates. Quarterly meetings are then held to discuss how the outlook applies to upcoming 3- to 12-month periods and to forecast specific influencing factors, including but not limited to interest rate volatility, yield curve movements and credit trends. Taken together, these sessions set the firm’s basic views on duration, yield-curve positioning, sector weighting and credit quality. Bottom-up strategies, including credit analysis, quantitative research and individual issue selection are then taken into account in conjunction with the top-down strategies in actively selecting the Unconstrained Bond Strategy portfolio positions, with careful consideration given to the dual objective of providing an attractive risk-adjusted return and mitigating the risk of capital losses over the long-term.
Attractive Risk-Adjusted Return PotentialThe PIMCO Unconstrained Bond Strategy seeks to deliver attractive risk-adjusted return by investing in a broad range of fixed-income securities, without significant sector or instrument limitations. This less restrictive approach allows the strategy to fully capitalize on PIMCO’s market views, drawing upon the expertise of specialist teams across all fixed income sectors and our globally oriented secular investment process. Over the long-term, this approach may allow PIMCO to achieve materially higher returns than what is traditionally associated with a core bond approach, while maintaining the liquidity, capital preservation and diversification benefits investors typically associated with fixed income.
Active Risk MitigationThe extra investment discretion that is afforded to the Unconstrained Bond Strategy approach allows PIMCO additional flexibility to help minimize the potential for negative returns over periods of reasonable length by defensively positioning the portfolio as warranted based on PIMCO’s secular and cyclical views. For example, during an anticipated rising rate environment the Unconstrained Bond Strategy may substantially eliminate interest rate exposure or even tactically move to a negative duration exposure. In addition, consistent with all PIMCO strategies, the Unconstrained Bond Strategy is built on PIMCO’s strong culture of risk management and focus on the long-term without ever losing sight of the risk.
Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, and inflation risk. 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. 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. The credit quality of a particular security or group of securities does not ensure the stability or safety of the overall portfolio. 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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