Investment Strategies

PIMCO Flexible Credit Income Fund Overview

Get a closer look at PIMCO’s alternative multi-sector credit strategy with Dan Ivascyn, Group CIO and Kevin Winters, Alternative Strategist.

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Winters: Hello, my name is Kevin Winters, and I’m an alternative and private credit strategist at PIMCO. Today I’m joined by Dan Ivascyn to discuss the PIMCO Flexible Credit Income Fund, also known as PFLEX.

As many of you know, Dan is the group chief investment officer at PIMCO. He also leads our efforts across the income landscape, as well as one of the key architects in our alternatives business and one of the lead portfolio managers on PFLEX.

Dan, we appreciate the time today. Let’s jump in. Can you please provide a brief overview of PFLEX?

Ivascyn: Sure. Thank you, Kevin. PFLEX is a global opportunistic credit vehicle. The structure is an interval fund. We seek attractive risk adjusted returns with a focus on current income. It’s a flexible mandate. We have the ability to take advantage of a global opportunity set.

The focus areas at the moment for the strategy are primarily in the mortgage related segments of the market. We’re focused on opportunities across the residential mortgage credit space, both legacy assets as well as select new originations.

We’re also looking at the opportunity set across the commercial real estate spectrum as well, a combination of more defensive investments, but investments that provide attractive opportunities within this COVID related stress environment as well as more aggressive, higher returning areas of the commercial real estate market as well.

The third area of focus for us is corporate credit, including emerging market opportunities. Currently, we have investments across the financial subsector of the corporate market as well as a lot of other thematic plays looking to take advantage of, again, an anticipated COVID related recovery later this year.

And then the final category relates to other asset backed type risk, opportunities within specialty finance, opportunities across other receivables, automobiles, student loans, other consumer assets. It will take advantage across all of these particular areas of the opportunity set within both the public and the private segment of the opportunity set as well.

Given the fact that this is a vehicle where liquidity is less of a focus, we have the ability not only to allocate across the public opportunity set but also leverage and take advantage of opportunities within the private space as well.

Winters: And Dan, you mentioned in your earlier comments, interval fund. What is an interval fund?

Ivascyn: Sure, so technically speaking, an interval fund is a registered closed end fund vehicle. What’s different than a typical closed end fund is that this is a vehicle that doesn’t trade on an exchange, and because it doesn’t trade on an exchange, purchases and sales take place at net asset value.

The only other difference there is that given that this is a locked up vehicle, redemption opportunities occur on a quarterly basis, and in fact, they’re capped at 5%. So this creates a dynamic where investors can pool their capital together, give up some liquidity relative to an open end fund type structure, generate attractive distributions – and the distributions accrue on a daily basis.

They’re paid out quarterly. You receive a similar 1099 tax reporting form as you would in an open end type structure. But because you’re giving up some liquidity relative to an open end fund, you can take advantage of investments that are a bit more complex, investments that are a bit less liquid, and in the process achieve typically higher distribution rates than you would in a more traditional open end type vehicle.

Winters: Very helpful, Dan. Final question that we receive from advisors is where does PFLEX fit in the broader portfolio context?

Ivascyn: Again, this isn't my area of focus, but when we’re talking to clients regarding PFLEX and where it may fit over the course of the last few years, we do see a few key things.

One, because this is a more aggressive form of investing within the fixed income arena, because we’re offering a fairly high dividend yield, a lot of clients are looking at this type of investment as an alternative to equities in their portfolio.

And when you compare this strategy to equities, it can be viewed as a form of derisking, where you’re getting a higher current dividend yield and therefore reducing your reliance on price appreciation as a source of returns.

Also, in the context of a fixed income allocation, this is a reasonable alternative versus traditional high yield public investments or other lower rated investments. It does represent a higher risk profile than investment grade credit, but also there will be less interest rate sensitivity from our perspective as well.

So we think within a segment of a fixed income allocation and the higher risk bucket, you’re able to maximize yield, take advantage of complexity and liquidity risk to generate increased return without piling on a lot more credit beta or a lot more interest rate exposure.

Then the final point would be relative to an investor’s alternatives allocation. What we’re trying to do here within the PFLEX structure is bring to bear a lot of the strategies and a lot of the themes that we typically reserve for segments of our alternatives book.

So I think people, in summary, at times look at it as an alternative to equities, perhaps a lower risk alternative to equities, a higher risk but higher yielding alternative to a more traditional fixed income allocation, or a way to diversify an already existing alternatives set of investments as well.

Winters: Thank you, Dan. We appreciate the time today and appreciate the opportunity to discuss with you the flexible credit income fund, also known as PFLEX, which is currently available for purchase on your custodial platform. Thank you for joining.

Text on screen: For more insights and information, visit pimco.com

Disclosure


The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Any tax statements contained herein are not intended or written to be used, and cannot be relied upon or used for the purpose of avoiding penalties imposed by the Internal Revenue or state and local tax authorities. Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.

Investors should consider the investment objectives, risks, charges and expenses of the funds carefully before investing. This and other information are contained in the fund’s prospectus and summary prospectus, if available, which may be obtained by contacting your investment professional or PIMCO representative.  Please read them carefully before you invest or send money.

The fund is an unlisted closed-end “interval fund.” Limited liquidity is provided to shareholders only through the fund’s quarterly offers to repurchase between 5% to 25% of its outstanding shares at net asset value (subject to applicable law and approval of the Board of Trustees, the Fund currently expects to offer to repurchase 5% of outstanding shares per quarter). Although interval funds provide limited liquidity to investors by offering to repurchase a limited amount of shares on a periodic basis, investors should consider shares of the Fund to be an illiquid investment. 

Past performance is not a guarantee or a reliable indicator of future results. Investments made by the Fund and the results achieved by the Fund are not expected to be the same as those made by any other PIMCO-advised Fund, including those with a similar name, investment objective or policies. 

The fund’s distribution rate may be affected by numerous factors, including changes in realized and projected market returns, fund performance, and other factors. There can be no assurance that a change in market conditions or other factors will not result in a change in the fund distribution rate at a future time.

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 the low interest rate environments increase 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. 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-related assets and other asset-backed instruments 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. Bank loans are often less liquid than other types of debt instruments and general market and financial conditions may affect the prepayment of bank loans, as such the prepayments cannot be predicted with accuracy. There is no assurance that the liquidation of any collateral from a secured bank loan would satisfy the borrower’s obligation, or that such collateral could be liquidated. 

Residential or commercial mortgage loans and commercial real estate debt are subject to risks that include prepayment, delinquency, foreclosure, risks of loss, servicing risks and adverse regulatory developments, which risks may be heightened in the case of non-performing loans. Investments in distressed loans and bankrupt companies are speculative and the repayment of default obligations contains significant uncertainties.  Investments in private credit may also be subject to real estate-related risks, which include new regulatory or legislative developments, the attractiveness and location of properties, the financial condition of tenants, potential liability under environmental and other laws, as well as natural disasters and other factors beyond a manager’s control. The value of real estate and portfolios that invest in real estate may fluctuate due to: losses from casualty or condemnation, changes in local and general economic conditions, supply and demand, interest rates, property tax rates, regulatory limitations on rents, zoning laws, and operating expenses. Structured products such as collateralized debt obligations and collateralized loan obligations are also highly complex instruments, typically involving a high degree of risk; use of these instruments may involve derivative instruments that could lose more than the principal amount invested. 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. The use of leverage may cause a portfolio to liquidate positions when it may not be advantageous to do so to satisfy its obligations or to meet segregation requirements. Leverage, including borrowing, may cause a portfolio to be more volatile than if the portfolio had not been leveraged.  Diversification does not ensure against loss.

An investment in an interval fund is not appropriate for all investors. Unlike typical closed-end funds an interval fund’s shares are not typically listed on a stock exchange. Although interval funds provide limited liquidity to investors by offering to repurchase a limited amount of shares on a periodic basis, investors should consider shares of the Fund to be an illiquid investment.  Investments in interval funds are therefore subject to liquidity risk as an investor may not be able to sell the shares at an advantageous time or price. There is also no secondary market for the Fund’s shares and none is expected to develop. There is no guarantee that an investor will be able to tender all or any of their requested Fund shares in a periodic repurchase offer.

This material contains statements of opinion and belief. Any views expressed herein are those of PIMCO as of the date indicated, are based on information available to PIMCO as of such date, and may not reflect recent market developments.

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 a long-term especially during periods of downturn in the market. An investment in the Fund is speculative involving a high degree of risk, including the risk of a substantial loss of investment.

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. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2021, PIMCO. 

PIMCO Investments LLC, distributor, 1633 Broadway, New York, NY 10019, is a company of PIMCO.

For investment professional use only- not for distribution to the public

CMR2021-0520-1656802

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