PIMCO Group Chief Investment Officer (CIO) Dan Ivascyn and Mohsen Fahmi recently joined existing senior Portfolio Managers Saumil Parikh, Sudi Mariappa and Mohit Mittal on the PIMCO Unconstrained Bond team. While the Unconstrained Bond strategy has always benefited from the full depth and breadth of PIMCO's global investment professional resources, which currently includes over 240 portfolio managers, Dan and Mohsen each bring unique perspectives and highly valuable expertise to the Unconstrained Bond portfolios. Dan's absolute return, structured credit and Income strategy experience alongside Mohsen's deep global macro trading expertise are strong and welcome complements to the existing Unconstrained Bond portfolio manager lineup.

In the following Q&A, Saumil Parikh, Mohsen Fahmi and Dan Ivascyn address the recent team changes and our approach to managing the Unconstrained Bond portfolios with the goal of delivering attractive absolute and risk-adjusted returns to PIMCO's investors.

Q: Can you please provide us with your thoughts on how Dan and Mohsen's skill sets and experience complement the expertise of the existing team members?
Saumil Parikh: Absolutely. Both Dan, as our newly elected Group CIO, and Mohsen's backgrounds bring tremendous experience and complementary expertise to the existing Unconstrained Bond team- a team with more than 100 years of collective investment management experience across a broad range of non-traditional and traditional investment strategies.

Dan has 23 years of investment experience and an impressive track record managing multi-sector fixed income, absolute return and structured credit strategies. As an example, he was recognized by Morningstar as U.S. Fixed-Income Manager of the Year in 2013 for the value he and his team delivered to investors in our Income strategy. Although the primary focus on delivering high and consistent income is different, Unconstrained Bond and PIMCO Income strategy share significant flexibility to access the entire global fixed income market to add value for investors. Dan's long-standing Income strategy experience, in addition to his other areas of specialization, is tremendously relevant and immediately additive to Unconstrained Bond's team and process.

Mohsen further complements the Unconstrained Bond team. He brings 30 years of investment experience at leading financial institutions, which include the World Bank, Salomon Brothers and, most recently, Moore Capital Management, where he was a senior portfolio manager on one of the most well-respected hedge funds in the world. Before joining PIMCO as a generalist portfolio manager, Mohsen managed absolute return, global fixed income and currency strategies at Salomon Brothers and, more recently, managed global macro and relative value strategies at Moore Capital. His extensive experience in the global fixed income and macro hedge fund arenas brings another source of powerful idea generation and risk management expertise to the Unconstrained Bond team.

In addition, Mohit and Sudi are also an integral part of the Unconstrained Bond portfolio management team and are responsible for managing Unconstrained Bond separate accounts for large clients. Mohit's background as a bottom-up corporate credit portfolio manager adds important insight into the investment grade and high-yield markets. Mohit also previously served as a specialist on PIMCO's interest rate management desk. Sudi previously served as head of PIMCO's global portfolio management and has deep experience managing global multi-sector fixed income and absolute return strategies. In addition, Mohit and Sudi both serve on PIMCO's Americas Portfolio Committee, which is responsible for monitoring important macroeconomic, regulatory and political investment considerations in the region.

Finally, my investment experience at PIMCO included rotating across the different specialist desks before becoming a generalist portfolio manager responsible for traditional and absolute return fixed income strategies. In addition, I lead the firm's quarterly cyclical economic forums, which have anchored PIMCO's investment process for more than four decades. As a result, I am centrally positioned in this process where all PIMCO investment professionals from around the world discuss and debate our outlook for global growth and inflation rates. These forecasts are the basis for our investment views, which are ultimately translated into portfolio positioning for all PIMCO strategies, including Unconstrained Bond.

Q: Will there be any changes to the Unconstrained Bond objectives and value proposition?
Dan lvascyn: Absolutely not. We strongly believe PIMCO's Unconstrained Bond strategy offers a unique value proposition for our clients amid a world of heightened uncertainty and prospectively lower returns. The portfolio management team will continue to capitalize on the full breadth and depth of PIMCO's global fixed income expertise with the goal of delivering positive risk-adjusted returns over a market cycle - while retaining the key attributes investors typically associate with core fixed income, including equity risk diversification and capital preservation.

Unconstrained Bond's absolute-return objective and broad opportunity set gives us the flexibility and agility to successfully navigate a range of market conditions. This opportunity set includes directional and relative value strategies across all sectors of the global fixed income market, and a portfolio duration band of -3 to +8 years. We also have the ability to scale exposures in high-conviction areas, while avoiding or shorting sectors and markets where PIMCO has a negative view.

Importantly, the collective investment expertise of the new portfolio management team, particularly in the non-traditional investment management arena, is perfectly suited for Unconstrained Bond's absolute-return orientation and expansive opportunity set and I'm highly confident that the strategy will successfully meet its return target while retaining core bond-like risk and other attributes valued by our clients.

Q: What is the Unconstrained Bond investment process, and will the portfolio management changes have any impact?
Mohsen Fahmi: Unconstrained Bond has always benefited from a collaborative management approach that incorporates ideas and resources from across the firm. We believe this approach will be further enhanced by the expanded absolute-return and other investment expertise of our portfolio management team, which consists of some of our most senior portfolio managers, including our Group CIO as Saumil noted. The team will coordinate closely on strategy development, outlook and positioning harmonization, and idea generation. In addition, portfolio positioning will continue to be guided by the PIMCO Investment Committee, which helps set the global investment strategy and outlook for the firm.

While the Unconstrained Bond team works closely with the Investment Committee to establish the key portfolio risk exposures, reflecting the firm's highest conviction market views, the team also benefits from the deep experience of PIMCO's specialist desks to refine and execute on those views. The Unconstrained Bond team remains in constant contact with the specialists to review the existing implementation of our strategies. This interaction with the specialist desks is a key component to driving returns - on top of the strategic positioning of the fund - because of their insights into valuations, liquidity, and tactical opportunities in their specific markets.

Q: How are you positioning Unconstrained Bond portfolios currently and where do you see value going forward?
Parikh: Our economic forecast for the next 12 months calls for a continuation of low amplitude, long frequency U.S. business cycle recovery, with GDP growth between 2.5% and 3.0%. In the U.S. credit markets, we continue to see opportunities in sectors tied to the housing market recovery such as non-agency mortgages. We also see opportunity in select corporate issuers, especially in sectors directly tied to improving consumer and business activity in the U.S., including automakers, energy, homebuilders and specialty finance.

The eurozone economic recovery remains too slow, too uneven and too fragile. As such, we expect growth will remain modest at around 1% over the next 12 months. Eurozone policymakers have already responded with additional easing measures, but they will likely need to undertake even more aggressive steps going forward. The European Central Bank's (ECB) leadership and the majority of its Governing Council have already committed to such action, and we see significant opportunities to benefit from the resulting asset-price appreciation across sectors. These include peripheral sovereign bonds, eurozone structured credit and financial sector bonds, as well as select eurozone bank capital and high yield securities.

Our cyclical outlook for the emerging markets (EM) is more nuanced and dependent on what happens in China over the next year. However, we believe that select economies such as Brazil and Mexico will continue to provide attractive duration and spread risk. These countries still offer meaningfully positive real yields, and we expect relatively healthy fiscal balance sheets in these economies, coupled with accommodative global monetary policy, to contribute to further upside. Our preference in EM is for sovereign exposure, followed by high quality quasi-sovereign financial and nonfinancial institutions.

In foreign exchange, opportunities are rising due to divergent cyclical outlooks and central bank policy between economies. On the one hand, the U.S. Federal Reserve is expected to raise rates in 2015. On the other hand, economies such as the eurozone and Japan will likely experience a highly accommodative policy for several years. Therefore, we maintain a long U.S. dollar bias versus a selection of other developed currencies. In addition, we favor select high quality EM currencies backed by either very high real interest rates or the promise of accelerated structural reforms. We are confident that active currency positioning can further enhance Unconstrained Bond's absolute return potential. Given our longer-term New Neutral outlook, which calls for modest growth, lower returns across traditional asset classes, longer-than-expected central bank accommodation and limited market volatility, we also find volatility premiums across a range of sectors selectively attractive.

Dan lvascyn: It is important to emphasize that Unconstrained Bond's absolute return orientation, flexibility and broad opportunity set allow us to tap into a range of diverse sources of value. These include exposures across global fixed income and currency markets, relative value opportunities and broad management discretion with respect to both long and short interest rate exposure as examples. With this in mind, we believe Unconstrained Bond's seasoned portfolio management team is exceedingly well positioned to deliver attractive absolute and risk-adjusted returns to our investors going forward.

The Author

Mohsen Fahmi

Portfolio Manager, Global Fixed Income

Daniel J. Ivascyn

Group Chief Investment Officer

Disclosures

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