Understanding Investing

PIMCO RealPath Blend Target Date Fund Glide Path, Seeking to: Build Savings, Defend Wealth, Support Income

Erin Browne, managing director, discusses how PIMCO uses strategic asset allocation to create diversification in the RealPath Blend Target Date Fund glide path in order to seek consistent returns, optimize real income and reduce volatility.

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Browne: RealPath Blend uses PIMCO's strategic asset allocation as the glide path for our underlying assets.

And we do this in order to optimize returns, diversification, and real income.

In doing so we're really just trying to design a portfolio that's robust and diversified, which can maximize returns, and also minimize volatility.

We do this by activating PIMCO's active fixed income managers for the fixed income piece, and also use Vanguard's passive equity managers for the equity piece. 

In fact, we've observed that most plan sponsors are designing their core menus by using both active as well as passive solutions. So the real question is, why are we using passive equity products and active fixed income products?

Well, active equity managers have largely struggled to outperform their passive peers, while fixed income managers have largely outperformed their passive counterparts. Why is this?

Well, the markets are just different. In equities you have very few issuers, but a fairly transparent marketplace, while on the same hand, in fixed income you have thousands of issuers, but largely over-the-counter market. And that provides a lot of opportunities that fixed income managers are able to exploit.

Participant balances are highest when target date fixed income allocations are highest.

And with interest rates as low as they are today, every incremental basis point of return that we can deliver to a plan participant can have a meaningful difference.

So as the portfolio manager for RealPath Blend, I take it personally that thousands of people are relying on us in order to deliver a successful retirement outcome.

It's important to me that we're able to seek to provide consistency of returns as well as minimize volatility.

Disclosure


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, if available. Encourage your clients to read them carefully.

Past performance is not a guarantee or a reliable indicator of future results

The Funds were designed to provide investors with a comprehensive retirement solution tailored to the time when they expect to retire and plan to start withdrawing money (the "target date"). Each Fund follows a target asset allocation schedule that changes over time to help reduce portfolio risk, increasing its exposure to conservative investments as the target date approaches. The principal value of the Fund is not guaranteed at any time, including the target date.

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.

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.

A word about risk: The fund invests in other funds and performance is subject to underlying investment weightings which will vary. 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. 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. 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. Sovereign securities are generally backed by the issuing government, obligations of U.S. Government agencies and authorities are supported by varying degrees but are generally not backed by the full faith of the U.S. Government; portfolios that invest in such securities are not guaranteed and will fluctuate in value. Inflation-linked bonds (ILBs) issued by a government are fixed-income securities whose principal value is periodically adjusted according to the rate of inflation; ILBs decline in value when real interest rates rise. Commodities contain heightened risk including market, political, regulatory, and natural conditions, and may not be suitable for all investors. Income from municipal bonds 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. The cost of investing in the Fund will generally be higher than the cost of investing in a fund that invests directly in individual stocks and bonds. 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. Investing in securities of smaller companies tends to be more volatile and less liquid than securities of larger companies. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. Derivatives and commodity-linked 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. Commodity-linked derivative instruments may involve additional costs and risks such as changes in commodity index volatility or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Investing in derivatives could lose more than the amount invested. Diversification does not ensure against loss.

This material contains the current 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. PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. 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.

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

CMR2019-0910-413993

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