Erin Browne, Portfolio Manager, Multi-Asset Strategy: In the first quarter, plan participants were hit with the worst quarter ever for the S&P 500, with the S&P declining nearly 30 percent and volatility spiking to levels above that which we saw during the global financial crisis. As a result, while we saw net inflows into the target-date funds, for those vintages closest to retirement, we actually saw net outflows.

Text on Screen: What has been the impact?

Amongst some vintages, particularly the 2025 vintage, we saw plan participants get hit hard, in some cases, declining as much as 25 percent from peak to trough.

As a result, we saw some plan participants get spooked by the extreme market volatility and move into core bonds, into cash, into stable value, which provided more of a safe haven asset for those plan participants.

In defined contribution more broadly, we also saw significant asset allocation shifts, with a move into stable value, with allocations increasing from 10 percent to 13 percent, and a move out of large-cap equities, with a decline from 25 percent to 24 percent.

Shots of PIMCO employees working.

PIMCO has a really different approach to the way that we think about glide path construction and asset allocation in our target-date suite of products.

We typically underweight traditional equity beta in our portfolio and overweight hard duration, or long bonds, as an example, as a way to provide a market shock absorber during periods of extreme market moves, and this served us well in our suite of products in the first quarter of 2020.

With a nearly 30-percent drawdown in the S&P 500 in the first quarter and volatility spiking to levels above that which we saw during the global financial crisis, PIMCO’s explicit downside risk mitigation program also offered an additional layer, or cushion, for those plan participants closest to retirement.

Text on screen: What’s Next?

We believe that defined contribution plans are going to be reviewing their target-date offerings and really thinking about appropriate risk mitigation as well as how to construct their asset allocation and their glide path philosophy.

What we saw really emerge in the first quarter is that during significant periods of market volatility, plan participants are really apt to focus on the short term, and not focused on their long-term goals and objectives.

And we think it’s really important that plan sponsors and advisors

Text on screen: How can advisors help plan participants now?

help their plan participants now, and that can be done in three ways. First, we think it’s important that plan sponsors and advisors focus their participants on their long-term goals and objectives.

Secondarily, portfolio construction and asset allocation really matters, so reviewing the portfolio construction, is important. And then, understanding what the risk measures are in the portfolio. This is the point in time when risk really matters, and being able to understand those risks can have meaningful implications for the portfolio.

We think that the next 10 years are going to look dramatically different than they have over the preceding 10 years, and that’s largely a result of higher starting points for valuations as well as a lower growth environment over the secular horizon.

We know this is a really difficult time for plan participants, for sponsors, as well as for advisors, and we really want to thank you for your faith in PIMCO, as well as your partnership with us, as we navigate these turbulent markets.

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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.

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 or by visiting www.pimco.com. Please read them carefully before you invest or send money.

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.

A word about risk: The funds invest in other PIMCO and non-PIMCO funds and performance is subject to underlying investment weightings which will vary. The cost of investing in a fund that invests in other funds will generally be higher than the cost of investing in a fund that invests directly in individual stocks and bonds. 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. Low interest rate environment increases 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. Equities may decline in value due to both real and perceived general market, economic and industry conditions. 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. 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. Treasury Inflation-Protected Securities (TIPS) are ILBs issued by the U.S. government. High yield, lower-rated securitiesinvolve 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. Tail risk 

hedging may involve entering into financial derivatives that are expected to increase in value during the occurrence of tail events. Investing in a tail event instrument could lose all or a portion of its value even in a period of severe market stress. A tail event is unpredictable; therefore, investments in instruments tied to the occurrence of a tail event are speculative. 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.

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.

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 current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only. 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. ©2020, PIMCO

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