Four Reasons to Use Active Management in Stable Value

Active management in Stable Value can be a powerful strategy to help potentially reduce downside risk and enhance returns

More from this section

Read Transcript

Hello, I’m David Braun, and I’m the head of PIMCO Stable Value Portfolio Management Team. A common stable value client question is: can active management add value in a stable value portfolio? Or, given the tight investment guidelines, is it better to pursue a low fee passive strategy?

Text on screen: Why Active Management?

PIMCO strongly believes active management is the way to ­go for stable value and here are four reasons why.

First, volatility is on the rise. For several years, investors were lulled into complacency due to low levels of market volatility.

Chart: A line graph charts stepped increases in the federal funds target rate from December 2016 to December 2018.

With the shift in the Federal Reserve’s Monetary Policy from accommodation to tightening, and w­­ith the fading impacts of fiscal stimulus, PIMCO believes that the market volatility we are beginning to see in 2018 is likely to continue.

While market volatility may make it harder for investors to sleep at night, it provides an active manager the ideal environment to potentially generate excess returns as the active manager can take advantage of market overshoots and undershoots.

Chart: A line graph charts stepped increases in the federal funds target rate starting in June 2018 followed by a decrease in rates at the start of 2019.

Second, credit risk has risen. Investment Grade Corporates will always be a key asset class for stable value portfolios. However, investors need to be careful, as the fundamentals have begun to deteriorate.

Leverage, especially for non-financial issuers, has risen to levels not seen in decades.

Shots of PIMCO employees working and screens with trading information on them.

At the same time, spreads for generic corporate bonds are not very attractive. Plus, a passive strategy that simply buys generic corporates, may be putting stable value investors in harm’s way.

Instead, at PIMCO, we deploy a much more active approach to credit selection.

Shots of PIMCO employees working.

It involves robust bottom up fundamental credit analysis, combined with the willingness and ability to buy out-of-benchmark credits.

We believe that a much more attractive risk reward profile can be achieved via active credit management. 

Third, more constraints argues for even more active management. We all know that stable value guidelines are constrained, meaning there are tight limits on certain types of securities. If you’re passively running your portfolio, how do you know you’re optimizing the usage of such scarce risk budgets? 

Active management seeks to ensure you’re getting the most out of our portfolio. This should improve your return potential and reduce the downside risk of your portfolio.

Fourth, active management is not just about trading and rebalance. It’s also about building a diversified portfolio. Stable value guidelines are built around generic benchmarks that are heavily concentrated in three types of bonds: US Treasuries, Agency Mortgage-Backed Securities, and Investment Grade Corporates.

Yet these three types of securities represent only a portion of the bond market and leave you with an overly concentrated risk profile. At PIMCO, we leverage our deep team of PMs and analysts to avoid commoditized, overvalued generic bonds and build you a more diversified portfolio.

Diversification can be a powerful risk management tool as it reduces your risk concentrations, and at the same time position you for a chance at better upside returns.

So, what should investors take away from this discussion? We see a market that is likely defined by higher volatility and higher level of credit risk. We believe the unique nature of stable value guidelines argue for more, not less, active management to both manage your downside risk and to pursue upside reward.

For more information, visit


All investments contain 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. 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 the current low interest rate environment increases this risk. Current 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. Money Markets are not insured or guaranteed by the FDIC or any other government agency and although they seek to preserve the value of your investment at $1.00 per share, it is possible to lose money. Investors should consult their investment professional prior to making an investment decision. 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. Diversification does not ensure against loss. 

Like other actively managed investments, stable value investments are subject to investment management risk. PIMCO does not guarantee the investment performance and the stable value investment account or portfolio may not achieve its stated objectives. Returns on stable value investments can also vary from benchmark indices because gains and losses are amortized over time, as well as other portfolio-specific factors. 

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. Investors should consult their investment professional prior to making an investment decision. 

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. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2019, PIMCO. Pacific Investment Management Company, LLC, 650 Newport Center Drive, Newport Beach, CA 92660


Filters: Reset All


Close Filters Dropdown
  • Tags


  • Category


    Bond by Bond
    Economic and Market Commentary
    Investment Strategies
    PIMCO Foundation
    PIMCO Education
    View from the Investment Committee
    View From the Trade Floor
  • Order By


    Most Recent
() filters applied

Multimedia Finder

Filter By:
  • Bond by Bond
  • Careers
  • Economic and Market Commentary
  • Investment Strategies
  • PIMCO Foundation
  • PIMCO Education
  • View from the Investment Committee
  • View From the Trade Floor
  • Viewpoints
  • Understanding Investing
  • A
  • B
  • C
  • D
  • E
  • F
  • G
  • H
  • I
  • K
  • M
  • N
  • P
  • Q
  • R
  • S
  • T
  • W
  • Z
Berdibek Ahmedov
Product Strategist, Equities and Multi-Asset
Del Anderson
Credit Analyst
Joshua Anderson
Portfolio Manager, Income and Asset-Backed Securities
Robert Arnott
Founder and Chairman, Research Affiliates
Andrew Balls
CIO Global Fixed Income
Rachel Betton
Justin Blesy
Asset Allocation Strategist
Meredith Block
ESG Research Analyst
Allison Boxer
David L. Braun
Portfolio Manager
Jelle Brons
Portfolio Manager, Global and U.S. Investment Grade Credit
Nathaniel Brown
Director of the PIMCO Foundation
Erin Browne
Portfolio Manager, Multi-Asset Strategies
Esteban Burbano
Fixed Income Strategist
Grover Burthey
Portfolio Manager, ESG
Libby Cantrill
U.S. Public Policy
John R. Cavalieri
Kenneth Chambers
Fixed Income Strategist
Stephen Chang
Portfolio Manager, Asia
Devin Chen
Portfolio Manager, Commercial Real Estate
Richard Clarida
Global Economic Advisor
Mathieu Clavel
Portfolio Manager, Alternative Credit
Tony Crescenzi
Portfolio Manager, Market Strategist
Josh Davis
Global Head of Risk Management
Pramol Dhawan
Portfolio Manager
Devin Ekberg
Senior Consultant, Advisor Education
David Fisher
Co-Head of Strategic Accounts, U.S. Global Wealth Management
David Forgash
Portfolio Manager
Preeyam Gandhi
Max Gelb
Product Strategist
Nick Granger
Portfolio Manager, Quantitative Analytics
Adam Gubner
Portfolio Manager, Distressed Debt
Bill Gurtin
Gregory Hall
Head of U.S. Global Wealth Management
David Hammer
Portfolio Manager
Mary Hoppe
Account Manager
Ray Huang
Portfolio Manager, Real Estate
Daniel H. Hyman
Portfolio Manager
Daniel J. Ivascyn
Group Chief Investment Officer
Henry Kao
Account Manager, Stable Value
Mark R. Kiesel
CIO Global Credit
Erica Kinsella
Product Strategist, ESG Strategies
Sean Klein
Head of Client Business Strategy – Client Solutions and Analytics
Kristofer Kraus
Portfolio Manager
Brian Kyle
Global Wealth Management
Raji O. Manasseh
Equity Strategist
Samuel Mary
ESG Research Analyst
Kyle McCarthy
Alternative Credit Strategist
Vidur Mehra
Mohit Mittal
Portfolio Manager, Multi-Sector
Alfred T. Murata
Portfolio Manager, Mortgage Credit
John Murray
Portfolio Manager, Global Private Real Estate
John Nersesian
Head of Advisor Education
Roger Nieves
Rick Pagnani
Head of Insurance-Linked Securities
Sonali Pier
Portfolio Manager, Multi-Sector Credit
Christina Pihos
Defined Contribution Marketing
Steven Pogorelec
Global Wealth Management
Gavin Power
Chief of Sustainable Development and International Affairs
Chitrang K. Purani
William Quinones
Product Strategist
Lupin Rahman
Portfolio Manager
Graham A. Rennison
Quantitative Portfolio Manager
Libby Rodney
Steve A. Rodosky
Portfolio Manager
Emmanuel Roman
Chief Executive Officer
Steve Sapra
Senior Advisor
Jerome M. Schneider
Portfolio Manager
Marc P. Seidner
CIO Non-traditional Strategies
Emmanuel S. Sharef
Portfolio Manager, Asset Allocation and Multi Real Asset
Greg E. Sharenow
Portfolio Manager, Commodities and Real Assets
Candice Stack
Head of Client Management, Americas
Kimberley Stafford
Global Head of Product Strategy; Responsible for Sustainability Oversight
Cathy Stahl
Global Head of Marketing
Jason R. Steiner
Portfolio Manager, Private Lending and Opportunistic Strategies
Christian Stracke
President, Global Head of Credit Research
Geraldine Sundstrom
Portfolio Manager, Asset Allocation, EMEA
Richard Thaler
Distinguished Service Professor of Economics and Behavioral Science at the University of Chicago's Booth School of Business
Mark Thomas
Account Manager, Global Wealth Management
Jessica K. Tom
Senior Credit Analyst
François Trausch
CEO and CIO of PIMCO Prime Real Estate
D. Alan Trice
Jerry Tsai
Client Solutions and Analytics
Matt Tuten
Portfolio Manager
Megan Walters
PIMCO Prime Real Estate
Qi Wang
CIO Portfolio Implementation
Jamie Weinstein
Portfolio Manager, Corporate Special Situations
Paul-James White
Portfolio Manager
Tiffany Wilding
Andrew T. Wittkop
Portfolio Manager, Treasuries, Agencies, Rates
Jerry Woytash
Portfolio Manager, Short-Term Desk
Kirill Zavodov
Portfolio Manager
Mike Cudzil
Portfolio Manager
Chris Brightman
Chief Executive Officer and Chief Investment Officer, Research Affiliates
Seray Incoglu
Portfolio Manager, Commercial Real Estate
Ben Bernanke
Chair, Global Advisory Board
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
Sustainable Development Goals at PIMCO
Forecast Favors Fixed Income
Positioning Portfolios for 2024
An Introduction to Charitable Giving
Q3 Muni Market Update: PIMCO Flexible Municipal Income Fund (MuniFlex)
Q3 Muni Market Update: PIMCO Flexible Municipal Income Fund (MuniFlex)

Load more results Load {{cCtrl.fetchResults}} more results