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Applying Institutional Discipline to Muni SMAs

The muni market is highly inefficient because it's dominated by smaller investors. Here we discuss how PIMCO applies an institutional discipline to this market, which better enables us to help clients meet different objectives. Learn more here.

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Shots of PIMCO employees in office

Bill Gurtin, Founder, Gurtin Municipal Bond Management: The muni market is highly inefficient, because it is dominated by retail investor behaviors.

David Hammer, Head of Municipal Bond Portfolio Management: We apply an institutional discipline to this market and our strategies, which helps us meet different client objectives, while unlocking potential returns.

Shots of PIMCO employees working at computers

Bill: When we look to maximize net returns, we have to quickly recognize opportunities and assess relative value. An example would be callable municipal bonds, which are often mispriced in the retail-dominated municipal space and can consistently provide a source of structural alpha.

Shots of PIMCO employees working in office

David: We think it's important that munis are evaluated in a broader context.

So this starts with our top-down investment process, where we forecast a number of macroeconomic outcomes. Economic factors have an impact on perhaps how munis will perform versus other asset classes within fixed-income credit markets.

Shots of a PIMCO meeting and employees working.

It's very important to draw on inputs from outside of the muni market.

Bill: We use bottom-up research by deploying forward-looking, proprietary credit research. This allows us to find hidden gems by leveraging both our credit and quantitative research, to uncover mispriced and misunderstood bonds and issuers and allows us to manage risk.

Shots of Bill and David in a meeting and employees working

David: At PIMCO we leverage our economies of scale for investors by aggregating our order flow across all of our separately managed accounts, from very large accounts to smaller accounts, by generating one order and one trade for all of our different account needs.

This allows us to reduce the transaction cost for investors, shrink the bid ask, and we believe, over time, potentially lead to better returns for municipal bond portfolios.

Bill: We believe PIMCO's broad set of muni solutions,

Shots of Bill and David in a meeting

and the institutional discipline we apply to the market, can help clients meet a broad range of different objectives.

For more insights and information visit pimco.com

Disclosure


All investments contain risk and may lose value. Income from municipal bonds is exempt from federal income tax and may be subject to state and local taxes and at times the alternative minimum tax; a strategy concentrating in a single or limited number of states is subject to greater risk of adverse economic conditions and regulatory changes. 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. 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. Management risk is the risk that the investment techniques and risk analyses applied by PIMCO will not produce the desired results, and that certain policies or developments may affect the investment techniques available to PIMCO in connection with managing the strategy.

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 suitable 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. There is no guarantee that an investment in any strategy or portfolio will achieve the investment objectives or that the desired results will be realized.

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 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. 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. Gurtin Fixed Income Management, LLC dba Gurtin Municipal Bond Management, a PIMCO company (“Gurtin”) is an SEC-registered investment adviser. PIMCO acquired Gurtin on 2 January 2019. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660, 800-387-4626. ©2020, PIMCO.

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