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Investment Strategies

Finding an Active Edge in Global Bonds

Andrew Balls, CIO Global Fixed Income, and Sachin Gupta, Portfolio Manager and Head of the Global Desk, discuss global bonds and why active management matters today.

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Text on screen: PIMCO’s active edge

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Text on screen: Andrew Balls, CIO Global Fixed Income

Balls: So, what is PIMCO's active edge in global bonds? I'd say the first thing is the investment process. We've been active fixed income managers for 50 years. We've been applying this investment process to global bonds for 30 years. I think for the global strategies, the global team is super important.

Text on screen: Sachin Gupta, Portfolio Manager, Head of the Global Desk

Gupta: You know we have experts within the global team and then of course other asset classes, who are looking at opportunities across the whole globe. The global bond market that we have access to and can invest in is about 130 trillion in size, it’s humongous, and having this expertise across the three time zones in every nook and cranny is incredibly powerful to build diversification for our clients, which I think is a real edge for us.

Text on screen: Actively investing for alpha

Balls: So, in terms of style of the investment approach and looking to have diversification, we will have top-down macro trades, which is very important in a strategy like the global strategies - duration, yield curve, positioning, spread and country allocation obviously is really important.

In global bond markets, you have a lot of non-economic players - you have passive funds, you have governments and companies which are focusing not on alpha but on other outcomes. I think that active approach is a real advantage.

Gupta: I agree with that and as you know very well, the firm has been investing a lot in building infrastructure and doing internal research that basically helps bring out all the ideas that you just mentioned.

We do a lot of quantitative work internally to build models to analyze different instruments that goes all the way across from futures contracts, to how to think about different derivatives, not just from a pure mathematical point of view, but also a long-term empirical or long-term returns perspective.

Then lastly, you mentioned different actors in the markets, just to add a point about passive. There are lots of passive alternatives, there are many clients who have been investing money that way.

But we know that passive investments can have their own shortcomings. In many cases, the benchmarks themselves are suboptimal, in many other cases, these passive investment techniques, they find it difficult even replicating the benchmark.

Now us being active, we don't fall in those traps because we're not looking to replicate something, we're looking to invest from a value and long-term standpoint, and I think that adds to our edge.

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Disclosures


IMPORTANT DISCLAIMER

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 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. Management risk is the risk that the investment techniques and risk analyses applied by an investment manager will not produce the desired results, and that certain policies or developments may affect the investment techniques available to the manager in connection with managing the strategy. Diversification does not ensure against loss.

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.

Alpha is a measure of performance on a risk-adjusted basis calculated by comparing the volatility (price risk) of a portfolio vs. its risk-adjusted performance to a benchmark index; the excess return relative to the benchmark is alpha.

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.

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CMR2024-0927-3894926

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