Investment Strategies

PIMCO Low Duration Income: Low Rate Sensitivity, Attractive Income Potential

Looking to lower rate risk without compromising income? Learn how the PIMCO Low Duration Income strategy seeks to maintain low interest rate sensitivity while generating attractive income and preserving capital with Alfred Murata, portfolio manager.

MORE ON INCOME STRATEGIES

More from this section

Read Transcript

Text on screen: PIMCO

Text on screen: PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized

Text on screen: Esteban Burbano, Fixed Income Strategist

Esteban Burbano: Hello, everyone. I'm Esteban Burbano and I'm a fixed income strategist here at PIMCO. Today I'm joined by Alfred Murata, managing director and one of the lead portfolio managers of PIMCO's low duration income strategy.

A low duration income strategy is our flexible global multisector strategy that focuses on delivering consistent income while also maintaining a structurally lower exposure to interest rate risk. Alfred, thank you for joining us.

Alfred Murata: Thank you. Thanks for having me.

Esteban Burbano: perhaps let's start with a brief overview of the strategy, its main objectives, and how it's currently positioned given the low interest rate environment that we're currently facing.

Text on screen: Alfred T. Murata, Portfolio Manager, Mortgage Credit

Alfred Murata: So in terms of the strategy, what we're trying to do is generate an attractive level of income while trying to

Images on screen: PIMCO trade floor

potentially protect against the downside. To do this we're taking advantage of the best ideas in the global opportunity set, which is more than 100 trillion in size, using the resources at PIMCO with more than 200 portfolio managers around the world, come up with ideas to include in the portfolio.

Something that we're not focusing on is trying to outperform a benchmark.

Esteban Burbano: And how do you think about the strategy's position in the current environment where we're seeing yields to be very low, and also the potential for interest rates to be volatile or even potentially move up given the changes in Fed stance?

Alfred Murata: Given the relatively low levels of interest rates, we don't believe that investors in many cases are compensated for the interest rate risk today that they may be taking in portfolios.

Text on screen: The Low Duration Income strategy may be a good fit for investors concerned about interest rates

Images on screen: The Federal Reserve and US Capitol

So the low duration income strategy we think can be a good complement or a good fit for investors that are concerned about rising interest rates.

In addition, we've had significant fiscal and monetary stimulus so far. And that could be removed, particularly the monetary stimulus could be removed. There can be an overreaction and interest rates may be increasing over time.

Images on screen: PIMCO trade floor

Having a low duration focus may potentially protect investors during more challenging or turbulent period in fixed income markets.

Esteban Burbano: And what about the positioning across the credit markets?

Alfred Murata: So in general central banks have done a great job at supporting the valuation of these more plain vanilla, more generic assets. So as you mentioned, credit spreads are on the tighter end. That doesn't mean that there aren't some attractive opportunities in the global fixed income universe which is more than 100 trillion in size.

Text on screen: TITLE – Current areas of opportunity:, BULLETS – Non-agency MBS, Select corporate credit, SUB-BULLETS – Financials, BULLETS – COVID- impacted sectors, SUB-BULLETS - Airlines

So one area that we continue to find attractive to invest in are non-agency mortgage backed securities. This asset class wasn't included in say the Fed purchase program. And that's an asset class that's trading at wider levels than before the Covid crisis. Whereas corporate credit in general is trading at tighter levels. And in terms of fundamentals, fundamentals they have actually been very strong over the past couple of years. We had significant increase in housing prices, which has led to significant deleveraging of the asset class. Whereas in the corporate credit space, many companies have been adding more leverage over the past couple of years. What we like is the combination of strong fundamentals and also attractive valuations.

Corporate credit in general I'd say is on the tighter end. But there are some attractive opportunities within the corporate credit space. One of them is in financials. Financials have had significant changes in financial regulations since the great financial crisis. Many banks now have tier one capital ratios, and are focused on safer business lines such as wealth management rather than proprietary trading. So that's one area that we like the fundamentals.

We also see some opportunities in some of the sectors that have been more negatively impacted by Covid, particularly the airlines. But they are focusing on bonds that are senior secured in the capital structure, such as in the airline space, bonds that are backed by either pools of planes, or gates and routes that the airline might need to maintain its operations, its frequent flyer program.

Esteban Burbano: Great. And what about in emerging markets? Is that also an area where we are finding some opportunities today?

Alfred Murata: Yeah. So we think that emerging markets are going to be the center of growth over the — say the secular horizon. That being said, over the past year since the Covid crisis began, emerging markets in general haven't had the financial flexibility to provide significant fiscal stimulus. So I think that's been much more positive for growth in the developed markets compared to the emerging markets so far.

Text on screen: We remain selective in emerging markets

Images on screen: Emerging market countries

But I think that it's important to be very selective and find the opportunities that are going to be more resilient in the event that say the Covid crisis takes longer than anticipated. But I think that we're very well-positioned within the strategy using the resources of PIMCO to capitalize on these opportunities.

Esteban Burbano: Great. And let's finally just touch a little bit about our overall strategy, and how do we manage for the structurally lower duration exposure or interest rate risk exposure versus some of our more flexible strategies?

Alfred Murata: So with respect to the low duration income strategy, this is a lower interest rate risk strategy similar to many of the other strategies that we have at PIMCO.

Images on screen: PIMCO trade floor

But I think the big difference is the focus on generating attractive level of income while trying to potentially protect against the downside, compared to so many of the other strategies where the objective is to try to outperform a benchmark.

The strategy is a member of the PIMCO income suite. And we're using the same investment process, the same portfolio management team, and trying to take advantage of the best ideas in the global opportunity set to try to achieve the objectives of the consistent income and stability of the net asset value.

Esteban Burbano: Thank you. And of course we have decades of experience managing for income strategies. So this is a great addition and something that we see many of our clients focusing on.

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

Text on screen: PIMCO

Recorded 13 October 2021

Disclosure


IMPORTANT NOTICE

Please note that the following contains the opinions of the manager as of the date noted, and may not have been updated to reflect real time market developments. All opinions are subject to change without notice.

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.

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.

This material contains the current opinions as of the date shown and such opinions are subject to change without notice. This material is 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.

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 is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517) is authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963), PIMCO Europe GmbH Irish Branch (Company No. 909462), PIMCO Europe GmbH UK Branch (Company No. 2604517) and PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 15 of the German Securities Institutions Act (WpIG). The Italian Branch, Irish Branch, UK Branch and Spanish Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority; and (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and 203  to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication.| PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2). The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Investment Management (Shanghai) Limited Unit 3638-39, Phase II Shanghai IFC, 8 Century Avenue, Pilot Free Trade Zone, Shanghai, 200120, China (Unified social credit code: 91310115MA1K41MU72) is registered with Asset Management Association of China as Private Fund Manager (Registration No. P1071502, Type: Other) | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. | PIMCO Japan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association and The Investment Trusts Association, Japan. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is managed and operated independently. The reference number of business license of the company approved by the competent authority is (110) Jin Guan Tou Gu Xin Zi No. 020. 40F., No.68, Sec. 5, Zhongxiao E. Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.). Tel: +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO Latin America Av. Brigadeiro Faria Lima 3477, Torre A, 5° andar São Paulo, Brazil 04538-133. | No part of this publication 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.

CMR2021-1202-1944051

Filters: Reset All

Filters

Close Filters Dropdown
  • Tags

    Reset

    Close
  • Category

    Reset

    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
    Education
    Close
  • Order By

    Reset

    Alphabetical
    Most Recent
    Close
() 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
  • L
  • M
  • N
  • O
  • P
  • Q
  • R
  • S
  • T
  • W
  • Z
Clear
Tina Adatia
Global and Core Fixed Income Product Strategist
Joshua Anderson
Portfolio Manager, Income and Asset-Backed Securities
Del Anderson
Credit Analyst
Robert Arnott
Founder and Chairman, Research Affiliates
Andrew Balls
CIO Global Fixed Income
Rachel Betton
Portfolio Manager, Municipal Bonds
Justin Blesy
Asset Allocation Strategist
Meredith Block
ESG Research Analyst
Allison Boxer
Economist
David L. Braun
Head of US Financial Institutions Portfolio Management
Jelle Brons
Portfolio Manager, Global 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
Public Policy
John R. Cavalieri
Kenneth Chambers
Fixed Income Strategist
Stephen Chang
Portfolio Manager, Asia
Devin Chen
Portfolio Manager, Commercial Real Estate
Josh Davis
Global Head of Risk Management
Pramol Dhawan
Head of Emerging Markets Portfolio Management
Alex Etzkowitz
Municipal Fixed Income Strategist
Joachim Fels
Global Economic Advisor
David Fisher
Co-Head of Strategic Accounts, U.S. Global Wealth Management
David Forgash
Head of Leveraged Loan Portfolio Management
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
Head of Municipal Bond Portfolio Management
Mary Hoppe
Ray Huang
Portfolio Manager, Real Estate
Daniel H. Hyman
Head of Agency MBS Portfolio Management
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
Kaboo Leung
Michael Levinson
Portfolio Manager, Leveraged Finance
Christine Long
Head of Retirement Marketing
Raji O. Manasseh
Equity Strategist
Chantal Manseau
Rene Martel
Head of Retirement
Samuel Mary
ESG Research Analyst
Scott A. Mather
CIO U.S. Core Strategies
Kyle McCarthy
Alternative Credit Strategist
Sean Meeker
Head of Business Development - Capital Markets (US)
Mohit Mittal
Portfolio Manager, Multi-Sector
Alfred T. Murata
Portfolio Manager, Mortgage Credit
John Murray
Portfolio Manager, Commercial Real Estate
John Nersesian
Head of Advisor Education
Roger Nieves
Jason Odom
Strategist, Asset Allocation
Rick Pagnani
Head of Insurance-Linked Securities
Sonali Pier
Portfolio Manager, Multi-Sector Credit
Christina Pihos
Defined Contribution Marketing
Steven Pogorelec
Global Wealth Management
Chitrang K. Purani
William Quinones
Product Strategist
Lupin Rahman
Head of EM Sovereign Credit
Libby Rodney
Steve A. Rodosky
Portfolio Manager, Real Return and Long Duration
Emmanuel Roman
Chief Executive Officer
Steve Sapra
Client Solutions & Analytics
Jerome M. Schneider
Head of Short-Term Portfolio Management
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
Anmol Sinha
Candice Stack
Head of Client Management, Americas
Kimberley Stafford
Global Head of Product Strategy
Cathy Stahl
Global Head of Marketing
Christian Stracke
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
Francois Trausch
CEO and CIO, Allianz Real Estate
D. Alan Trice
Jerry Tsai
Quantitative Research Analyst
Megan Walters
Global Head of Research, Allianz Real Estate
Qi Wang
CIO Portfolio Implementation
Jamie Weinstein
Portfolio Manager, Head of Corporate Special Situations
Tiffany Wilding
North American Economist
Kevin Winters
Andrew T. Wittkop
Portfolio Manager, Treasuries, Agencies, Rates
Kirill Zavodov
Portfolio Manager
Chris Brightman
Chief Executive Officer and Chief Investment Officer, Research Affiliates
PIMCO
Ben S. Bernanke
Chair, Global Advisory Board
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
Take Advantage of Today’s Attractive Bond Yields