Strategy Spotlight

PIMCO StocksPLUS: Looking Beyond Traditional Stock Picking in Pursuit of Sustainable Alpha in Equity Portfolios

Active bond management can serve as an efficient, cost-effective approach to generating alpha in equity allocations.

The equity market volatility of 2020 tested the belief that active equity managers are better equipped to navigate periods of market stress than their passive peers. The performance of active equity managers did little to substantiate this belief, as the percentage of managers that outperformed their passive peers decreased during the year. But there are other solutions. In this Q&A, we explore how active bond management can serve as an efficient, cost-effective approach to generating alpha in equity allocations.

Q: How does the StocksPLUS methodology work, and why should clients consider StocksPLUS for their equity allocations?

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The Author

Marc P. Seidner

CIO Non-traditional Strategies

Mohsen Fahmi

Portfolio Manager, Global Fixed Income

Bryan Tsu

Portfolio Manager, CMBS and CLO

Jing Yang

Portfolio Manager, Structured Credit

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Disclosures

Past performance is not a guarantee or a reliable indicator of future results.

A word about risk:  Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. 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. Mortgage and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market’s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee there is no assurance that private guarantors will meet their obligations. 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. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. Derivatives 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. Diversification does not ensure against loss.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

Alpha is a measure of performance on a risk-adjusted basis calculated by comparing the volatility (price risk) of a portfolio vs. its risk-adjusted performance to a benchmark index; the excess return relative to the benchmark is alpha.

Beta is a measure of price sensitivity to market movements. Market beta is 1.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the managers 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. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2021, PIMCO.

CMR2021-0623-1698743

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