Multi-Sector Bonds

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TALK ABOUT THE BENEFITS OF MULTI-SECTOR BONDS


Many investors are looking for steady income to help them meet their retirement needs. In today's uncertain, low yield environment, however, flexibility and a broad, global opportunity set are key to meeting that objective.

Lower expected returns make flexibility more important than ever

 

Forward-looking returns for passive core bonds are closely correlated with current yield levels. Faced with today's historically low yields, income investors may be tempted to focus on the highest yielding segments of the bond market – a strategy that could put hard earned savings at risk.

Tapping into a broad opportunity set can enhance income potential

 

With lower expected returns going forward, the ability to access a broadly diversified opportunity set, rather than focusing on the highest yielding segments of the market can enhance return potential while also helping to diversify risk. As this chart shows, the global bond market (at right) is much broader than the Bloomberg Barclays U.S. Aggregate Bond Index, the proxy for the core bond universe, many investors look to for income.

Pinpointing the most attractive sources of income across a broad range of sectors

 

Actively managed multi-sector income strategies seek to capture diverse sources of income by identifying opportunities that generate attractive income potential while diversifying exposures across sectors. As the chart demonstrates, many different bond sectors offer higher yields than U.S. Treasuries in exchange for varying degrees of additional risk – the key is to invest with a manager that has the flexibility and know-how to pinpoint the most attractive sources of income across the broadest possible opportunity set.

Access to a variety of sectors is key in rising rate environments

 

The Federal Reserve has resumed its hiking cycle. While we expect increases to the fed funds rate to be gradual, rate hikes can pose challenges to some areas of the bond market. Multi-sector income strategies with the ability to access different parts of the global bond market can lower interest rate sensitivity while taking advantage of opportunities in this environment.

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Disclosures

All investmentscontain risk and may lose value. Investing in the bond market is subject to risks, including market,interest rate, issuer, credit, inflation risk, and liquidity risk. Thevalue of most bonds and bond strategies are impacted by changes in interestrates. Bonds and bond strategies with longer durations tend to be moresensitive and volatile than those with shorter durations; bond pricesgenerally fall as interest rates rise, and the current low interest rateenvironment increases this risk. Current reductions in bond counterpartycapacity may contribute to decreased market liquidity and increased pricevolatility. Bond investments may be worth more or less than the originalcost when redeemed. High yield, lower-rated securitiesinvolve greater risk than higher-rated securities; portfolios that investin them may be subject to greater levels of credit and liquidity risk thanportfolios that do not. Floating rate loans are not tradedon an exchange and are subject to significant credit, valuation andliquidity risk. Investing in foreign-denominated and/or -domiciled securities mayinvolve heightened risk due to currency fluctuations, and economic andpolitical risks, which may be enhanced in emerging markets. Management risk is the risk that the investmenttechniques and risk analyses applied by the investment manager will notproduce the desired results, and that certain policies or developments mayaffect the investment techniques available to investment manager inconnection with managing the strategy. There is no guarantee that theseinvestment strategies will work under all market conditions or are suitablefor all investors and each investor should evaluate their ability to investlong-term, especially during periods of downturn in the market. Investorsshould consult their investment professional prior to making an investmentdecision.

This material contains the opinions of the manager and such opinions aresubject to change without notice. This material has been distributed forinformational purposes only and should not be considered as investmentadvice or a recommendation of any particular security, strategy orinvestment product. Information contained herein has been obtained fromsources believed to be reliable, but not guaranteed. No part of thismaterial may be reproduced in any form, or referred to in any otherpublication, without express written permission. PIMCO is a trademark ofAllianz Asset Management of America L.P. in the United States andthroughout the world. ©2017, PIMCO.