Generating Yield with Resilience: Positioning in Today’s Market

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.

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 a historical perspective and quite tight credit spreads from a 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.

Clickable overlay on screen: “Watch the full webcast”

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 hedged 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

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.

Investors should consider the investment objectives, risks, charges and expenses of the funds carefully before investing. This and other information are contained in the fund’s prospectus and summary prospectus, if available, which may be obtained by contacting your investment professional or PIMCO representative or by visiting www.pimco.com. Please read them carefully before you invest or send money.

Investments made by a Fund and the results achieved by a Fund are not expected to be the same as those made by any other PIMCO-advised Fund, including those with a similar name, investment objective or policies.  A new or smaller Fund’s performance may not represent how the Fund is expected to or may perform in the long-term.  New Funds have limited operating histories for investors to evaluate and new and smaller Funds may not attract sufficient assets to achieve investment and trading efficiencies.  A Fund may be forced to sell a comparatively large portion of its portfolio to meet significant shareholder redemptions for cash, or hold a comparatively large portion of its portfolio in cash due to significant share purchases for cash, in each case when the Fund otherwise would not seek to do so, which may adversely affect performance.

It is important to note that differences exist between the fund’s daily internal accounting records, the fund’s financial statements prepared in accordance with U.S. GAAP, and recordkeeping practices under income tax regulations. It is possible that the fund may not issue a Section 19 Notice in situations where the fund’s financial statements prepared later and in accordance with U.S. GAAP and/or the final tax character of those distributions might later report that the sources of those distributions included capital gains and/or a return of capital. Please see the fund’s most recent shareholder report for more details.

Although the Fund may seek to maintain stable distributions, the Fund’s distribution rates may be affected by numerous factors, including but not limited to changes in realized and projected market returns, fluctuations in market interest rates, Fund performance, and other factors. There can be no assurance that a change in market conditions or other factors will not result in a change in the Fund’s distribution rate or that the rate will be sustainable in the future. 

For instance, during periods of low or declining interest rates, the Fund’s distributable income and dividend levels may decline for many reasons. For example, the Fund may have to deploy uninvested assets (whether from purchases of Fund shares, proceeds from matured, traded or called debt obligations or other sources) in new, lower yielding instruments.  Additionally, payments from certain instruments that may be held by the Fund (such as variable and floating rate securities) may be negatively impacted by declining interest rates, which may also lead to a decline in the Fund’s distributable income and dividend levels.

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. 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. 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. The credit quality of a particular security or group of securities does not ensure the stability or safety of an overall portfolio. 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.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. 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. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world. ©2025, PIMCO.

PIMCO Investments LLC, distributor, 1633 Broadway, New York, NY 10019, is a company of PIMCO.

CMR2025-0819-4760251