Strategy Overview
The Mortgage LIBOR Plus strategy aims to generate consistent excess returns over a LIBOR benchmark with limited volatility through active cash management and relative value strategies in mortgages, governments and derivative instruments. The strategy seeks to capture relative value through long/short strategies by opportunistically extracting value from structural and tactical market mispricings. These pricing anomalies stem from supply/demand imbalances, expectations in the interest rate environment and prepayment expectations.

PIMCO believes that actively managed exposure to Agency pass-throughs offers the lowest-volatility way to seek outperformance in a mortgage portfolio. As a result, PIMCO demands substantial yield premiums for illiquid securities and for securities that have significant modeling risk (we frequently demand more compensation than the market affords). Despite an emphasis on Agency pass-throughs, PIMCO’s mortgage investment process still looks to all segments of the vast mortgage-backed securities (MBS) market to add value. However, given the opportunity to generate alpha with the preferred liquidity and quality of the Agency pass-through market, we will not purchase non-index related securities in a portfolio unless we are confident in their potential for outperformance.

Applications for the Mortgage LIBOR Plus Strategy

Investment Philosophy and Sources of Added Value

Risk Management/Controls

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Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, and inflation risk. 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. PIMCO strategies utilize derivatives which 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. The credit quality of a particular security or group of securities does not ensure the stability or safety of the overall portfolio. There is no guarantee that these investment strategies will work under all market conditions and each investor should evaluate their ability to invest for a long-term especially during periods of downturn in the market. Diversification does not ensure against loss.

LIBOR (London Interbank Offered Rate) is the rate banks charge each other for short-term Eurodollar loans. It is not possible to invest directly in an unmanaged index.

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 and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.