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Economic and Market Commentary

Investing Across the Spectrum: Part 1

Mike Cudzil, portfolio manager, fixed income, and Jason Steiner, portfolio manager, alternative credit, discuss the current real estate landscape, what opportunities exist in real estate, and why PIMCO is well-positioned to respond quickly to these opportunities.

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.

Voice-over: From inflation to interest rates, today’s ongoing disruptions present opportunities for investors.

In this series, our portfolio managers explore how PIMCO’s deep expertise across public and private markets gives investors the flexibility to navigate the ever-evolving landscape.

Text on screen: Finding Opportunities Amid Market Fluctuations

Images on screen: Residential real estate, residential neighborhood

Text on screen: Mike Cudzil, Portfolio Manager, Fixed Income

Cudzil: Agency mortgages are attractive. So there’s a reason for that. There’s some pretty terrible technicals. The Fed’s unwinding their balance sheet. And more recently, there’s the banks that went into receivership, and the FDIC needs to unwind some of these portfolios, and so there’s this overhang in the agency mortgage market.

This leads to an opportunity for us to deploy capital at PIMCO, adding agency mortgages everywhere we can.

Text on screen: Jason Steiner, Portfolio Manager, Alternative Credit

Steiner: Yeah, it’s interesting, this banking crisis is probably the first crisis that we’ve seen in a couple of years, where mortgage credit hasn’t kind of been at the forefront. We had the Covid situation where concerns about credit broadly caused nonagency mortgages to trade off and mortgage loans to trade off, and that created a good opportunity.

Recently, we’re really taking our cues from the agency mortgage market. As that market cheapens, we cheapen kind of in kind with that. And that creates all sorts of interesting opportunities.

Text on screen: Leveraging Securitization and Insights to Create Value

Images on screen: Residential real estate

Steiner: I think the best example of how we’ve created value for our clients on the private side is really in the arbitrage opportunities that exist when we take private market assets and bring them into the public markets. So through the securitization process.

We have advantages not just because we’re investors in the agency mortgage market but also because when I buy mortgage loans and then create bonds off of them and sell them into the fixed income markets, we have advantages being a very large fixed income manager in terms of where PIMCO’s appetite might be. It can give us insight into where demand might be or where interest might be from other third party fixed income managers, and that helps us time and pace and scale our business into a demand cycle that is uncertain, and we want to plan for it. We don't want to buy billions of dollars of loans as spreads are widening.

Cudzil: Yeah, and you find out where they’re trying to narrow the box, where they’re trying to get the agencies out of the market, and where that – it’s just squeezing air in the balloon from one end to the other. So if the agencies are exiting the cash out refi market, or if they’re exiting the investor loan market, that’s opportunities for Jason and that’s kind of the direction to travel.

Text on screen: Harnessing Analytics to Quickly Respond to Opportunities

Images on screen: Residential neighborhood

Cudzil: We’re always pricing opportunities in markets, so we always kind of know where we think opportunities are, what we want to participate in, and where we see value.

When an opportunity comes in, and it’s a particular area that we’re excited about, we’re ready to respond almost instantaneously. It’s something that we’ve already done the work on, and it’s just a matter of evaluating a particular CUSIP in the space which we’re already excited about. And so it’s something that we’re just doing on a continuous basis.

When these recent opportunities with some of these banks that went into receivership or some assets that came up for sale, we can respond and send prices back in real time.

Steiner: To Mike’s point, we have to be in the market every day, because we depend on mortgage supply to help fill that asset void.

What that’s led to is a decade plus of development of analytics, a decade plus of the resources and the team that really support that continuous need to be in the business and in the market every day. There’s never an environment where Mike and I are going to wake up one day and say, we haven’t bought mortgages in three weeks.

There’s no tourists in the mortgage market at PIMCO. Other platforms, maybe when yields get too low or credit gets too risky, they step away. We’ll always find homes for that at PIMCO. And that keeps us in the market every day. And that lets us respond very quickly when unexpected opportunities come around.

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

Text on screen: PIMCO

Disclosure

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. 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.  Diversification does not ensure against loss.

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 long-term, especially during periods of downturn in the market.

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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CMR2023-0525-2920111

Mike Cudzil, portfolio manager, fixed income, and Jason Steiner, portfolio manager, alternative credit, discuss the current real estate landscape, what opportunities exist in real estate, and why PIMCO is well-positioned to respond quickly to these opportunities.

Investing Across the Spectrum: Part 2

Investing Across the Spectrum: Part 3

Investing Across the Spectrum: Part 4

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