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Unconstrained Bond

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Unconstrained Bond Strategy

Article Main Body

What is the Unconstrained Bond Strategy?

The PIMCO Unconstrained Bond Strategy is an absolute return-oriented, fixed income strategy that embodies PIMCO’s secular thinking, global themes, and integrated investment process without the constraints of a benchmark or significant sector/instrument limitations.

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 Unconstrained Bond Strategy Provides Investors with the Opportunity For:
  • Attractive risk-adjusted return
  • Capital preservation
  • Material diversification benefits
PIMCO’s Experience
The PIMCO Unconstrained Bond Strategy capitalizes on PIMCO’s almost four decades of active bond management experience and extraordinary breadth and depth of global fixed income expertise. The strategy also directly benefits from the innovation and rigorous focus on risk management that has been a hallmark of the firm’s success.
Investment Philosophy & Process

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.

Applications for the PIMCO Unconstrained Bond Strategy
The PIMCO Unconstrained Bond Strategy is, by design and objective, an absolute return strategy and may be considered an alternative investment approach in the sense that the active management discretion and alpha potential may be materially greater than that associated with traditional active fixed income management strategies. The strategy is also likely to provide diversification at the portfolio level as it should not exhibit a materially positive correlation with the equity market, which is the other key benefit that investors associate with alternatives. From a risk perspective, however, the PIMCO Unconstrained Bond Strategy is most closely related to core global fixed income.
How is PIMCO Unconstrained Bond Strategy Different From PIMCO Total Return?
The PIMCO Total Return Strategy is designed to generate “index plus” returns, is governed by guidelines that reference the benchmark index and is managed within the confines of an implicit or explicit tracking error target. In contrast, the PIMCO Unconstrained Bond Strategy is an absolute return strategy that is not constrained by either low tracking error expectations or guidelines that are tied to the benchmark. As such, PIMCO has greater discretion to vary the risk positions, including but not limited to duration, curve, sector and currency exposures, with the PIMCO Unconstrained Bond Strategy.
Reasons for Investing in This Strategy

Attractive Risk-Adjusted Return Potential
The 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 Mitigation
The 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.

How To Invest

  • Separate Accounts
  • Mutual Funds
Article Disclaimer

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.

 

How To Invest

  • Separate Accounts
  • Mutual Funds

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IN FIXED INCOME:
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  • Floating Income Strategy
  • Foreign Bond Strategies
  • Global Advantage Strategy
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  • Global Credit Opportunity Strategy
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  • High Yield Spectrum Strategy
  • Income Strategy
  • Inflation-Linked Credit Strategy
  • Investment Grade Credit Strategy
  • Long Duration Credit Strategy
  • Low Duration Strategy
  • Moderate Duration Strategy
  • Mortgage LIBOR Plus Strategy
  • National Municipal Bond Strategy
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  • PIMCO Absolute Return Strategy (PARS)
  • Real Income Strategy
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  • StocksPLUS Long Duration Strategy
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  • Unconstrained Bond Strategy
  • Unconstrained Tax Managed Bond Strategy

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​PIMCO’s Unconstrained Bond Strategy: Flexibility in a Changing Market
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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. ©2013, PIMCO.

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