Generating Yield with Resilience: Positioning in Today’s Market
Text on screen: PIMCO
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Text on screen: Esteban Burbano, FIXED INCOME STRATEGIST
ESTEBAN BURBANO: Of course, our income strategy has had a remarkable first half of the year. So, now, let's just talk about, from a big picture perspective, from a portfolio perspective, how are you thinking about portfolio positioning, specifically with respect to interest rate risk, credit risk, and FX risk?
Text on screen: Daniel J. Ivascyn, GROUP CHIEF INVESTMENT OFFICER
DAN IVASCYN: Yeah, let me start with the philosophy. I mentioned today, a more uncertain world, more volatility, less synchronized cycles, more political uncertainty, and very elevated equity valuations from historical perspective and quite tight credit spreads from historical perspective.
So the market is optimistic and therefore what we're trying to do across this very flexible portfolio is to find ways to generate attractive yields and generate attractive yields relative to other strategies out there in the market that have a lot more economic sensitivity, that would be much more exposed to drawdowns if we were to get into a period of more sustained economic slowing or other factors were to crop up that led to some fear in markets. So, what we're trying to do today is to generate an attractive yield, but also provide resiliency.
That's been a theme we've talked about now for several quarters. It's a theme that we believe is pretty important and is a key differentiator of the strategy over the course of the next couple of years in this highly uncertain environment. So that’s one point. The second point is that, we're really, really focused on the fact now that after the significant selloff in rates that we had over the last few years, starting yields, either nominal yields or inflation adjusted yields are attractive from a global perspective.
They're particularly attractive in many cases when hedge back to the US dollar, at least in terms of the primary currency exposure and they look attractive again in a historical context. So, you know, yeah, there's gonna be a lot of noise.
Yes, there's a lot of near-term economic uncertainty, policy uncertainty, but starting yields are quite attractive. So again, today, relative certainly, relative to where we were back at the end of 2021 as an example, we have more interest rate risk, we've locked in some of these higher yields for a longer period of time relative to the cash rate.
And again, this diversified high quality interest rate exposure has served us well, you know, to your point in terms of performance year to date, but also going back over the last 12 months or so I think that's a really great example of how high starting yields could be a significant ballast to a portfolio.
They could provide a significant resiliency in terms of return. So we remain optimistic, not only in terms of the yield component of the strategy, but also the ability to generate incremental return or alpha.
Disclosure
The discussion and content provided within this webcast is intended for informational purposes and may not be appropriate for all investors. The information included herein is not based on any particularized financial situation, or need, and is not intended to be, and should not be construed as, a forecast, research, investment advice or a recommendation for any specific PIMCO or other security, strategy, product or service. Fixed income is only one possible portion of an investor’s portfolio, which can also include equities and other products. Past performance is not a guarantee of future results. All investments contain risk and may lose value. Investors should speak to their financial advisors regarding the investment mix that may be right for them based on their financial situation and investment objective.
IMPORTANT NOTICE
Please note that this webcast contains the opinions of the manager as of the date recorded, 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: 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. 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. 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. Diversification does not ensure against loss..
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