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Security Selection and Liquidity Management Are Key in the Steadily Growing Credit Market
by Jelle Brons, David Linton of PIMCO,
Over the past several years, two trends have reshaped the market for U.S. investment grade (IG) corporate bonds: a significant increase in the size of the market (both in number of issuers and issues and in aggregate debt outstanding) and a contraction in dealer balance sheets.
Align the Design: Considering and Evaluating Target-Date Glide Paths
by Stacy Schaus and Ying Gao of PIMCO,
Few responsibilities are as important to defined contribution (DC) plan sponsors as selecting a default glide path that best maximizes a participant’s odds of retiring on time and with sufficient lifetime income. The goal, put simply, is to maximize asset returns while minimizing volatility relative to the retirement liability – precisely what Objective-Aligned Glide Paths aim to achieve.
Monetary Policy at Warp Speed
by Harley Bassman of PIMCO,
An imaginative twist on theoretical physics forms the premise of the science fiction series “Star Trek”: An engine called a warp drive enabled the Starship Enterprise to travel faster than the speed of light, going beyond known space to uncharted, exciting new worlds. The confounding detail was managing the sheer power inherent in the warp drive, including its potential to behave in unexpected ways.
Global Divergence, the Federal Reserve and the Impact on U.S. Insurers
by David Braun, Scott Millimet of PIMCO,
Insurance publication SNL Financial recently sat down with members of PIMCO’s Financial Institutions Group to discuss PIMCO’s latest views on global divergence, the Federal Reserve and the impact on U.S. insurers in their investment portfolio positioning.
Pregnant Pause
by Adam Bowe and Robert Mead of PIMCO,
After re-engaging policy support in February following an 18-month hiatus, the Reserve Bank of Australia (RBA) wrong-footed many in the market by keeping policy on hold in the two subsequent board meetings. So was February's decision a "one-and-done" policy event or the start of a more aggressive easing cycle?
Key Themes for Navigating Credit Markets in Alternatives Strategies
by Joshua Anderson of PIMCO,
Against a backdrop of low volatility and tight spreads, 2014 turned out to be a challenging year for many alternative investors as they watched their trades become crowded, and reverse quickly when expected returns were not realized. One such example was the positioning among investors in advance of the European Central Bank’s (ECB) Asset Quality Review announcement; many had increased their exposure in anticipation of a tightening of European bank-related securities.
Expect Further Divergence in Emerging Market Economies
by Michael Gomez, Lupin Rahman of PIMCO,
Each quarter, PIMCO investment professionals from around the world gather in Newport Beach to discuss the firm’s outlook for the global economy and financial markets. In the following interview, portfolio managers Michael Gomez and Lupin Rahman discuss PIMCO’s cyclical outlook for the emerging markets (EM).
An Open Letter to the Eurozone
by Harley Bassman of PIMCO,
As it has once again become fashionable to send an open letter to foreign dignitaries, now is certainly a propitious moment to help focus attention upon dissolving a perplexing financial impediment. For while limiting nuclear proliferation and reducing armed conflict are headline grabbers, the more mundane topic of cleansing the channels of global finance is in fact a public policy good that can create a positive social impact in real time. As such, I now respectfully offer my thoughts on ways to enhance the effectiveness of the current policy path.
Supply-Side Yellenomics Is (Slowly) Losing Its Grip on Markets
by Tony Crescenzi of PIMCO,
Should investors worry about the possibility that the Federal Reserve might raise interest rates this year? How about the negative economic consequences of the rally in the U.S. dollar? “Hawkish” Fed mistakes?
U.S. and Canada: Continued Recovery With Some Potential for Headwinds
by Ed Devlin, Mike Cudzil of PIMCO,
?Each quarter, PIMCO investment professionals from around the world gather in Newport Beach to discuss the firm’s outlook for the global economy and financial markets. In the following interview, portfolio managers Ed Devlin and Mike Cudzil discuss PIMCO’s cyclical outlook for Canada and the U.S..
Will the UK Election Derail the Recovery?
While the economic outlook for the UK is not without risk, most notably if there is an extended period of political paralysis, the UK recovery is much better shape than during the last general election in 2010 and should stay its course. We believe the benign inflationary backdrop will aid economic growth that saw GDP gains of 0.6% for the final quarter of 2014. In an environment of subdued underlying inflationary pressures and sterling appreciating relative to its major trading partners, the Bank of England can afford to wait to tighten monetary policy.
Duration: To Hedge or Not to Hedge?
Because duration tends to be an important component of the return profile in a bond portfolio, adjusting exposure rather than hedging it away may make sense for many investors. Low duration strategies may provide a level of interest-rate duration that provides a better trade-off between a full market beta (with interest-rate duration) and a fully duration-hedged beta.
Fit & Focused
by Mark R. Kiesel of PIMCO,
Many powerful forces are driving markets and asset prices; chief among them are global monetary policy, technicals and fundamentals.
We use rigorous top-down and bottom-up analysis to identify the best sectors and companies around the world.
We see opportunities in the U.S. (cyclical consumer and housing sectors), Europe (equities, bank capital securities, high yield bonds and corporate hybrids), China (property, technology and Macau) and Japan (cyclical industries, exporters and financials).
Corporate Bonds Offer Opportunities in the Slowing Economy
Lack of corporate leveraging and investment among Australian companies may provide a macro headwind to economic growth and, hence, future prospects for equity investors, but from a creditor's perspective, this should keep credit metrics relatively healthy.
PIMCO's bottom-up analysis has helped identify several opportunities, even within the resources sector, where strong balance sheets, competitive industry positions and sound management build a compelling case for credit investors despite the challenging period ahead.
In a Challenging Environment, Policy Easing Sweeps Through Asia
The key change to our cyclical outlook for Asia: We have further downgraded our growth forecast for China to the low-6% range as real borrowing rates remain elevated. In Japan, we expect growth to recover from last year's technical recession, following the delay in the next value-added tax (VAT) hike and the increase in the Bank of Japan's easing program.
Can ECB Policy Heal Europe’s Ills?
In this interview, Managing Directors Mike Amey, Andrew Bosomworth and Lorenzo Pagani discuss the conclusions from PIMCO’s quarterly Cyclical Forum in March 2015 and how they influence our European investment strategy. They also delve into the impact of the European Central Bank’s (ECB) balance sheet expansion on growth and inflation and reflect on Europe’s improving economic health.
Proposed Changes to U.S. Bankruptcy Code Could Create Opportunities in Distressed Credit
The American Bankruptcy Institute's (ABI) proposals aim to balance the objectives of effective reorganization of debtors and the maximization of asset values for all creditors and stakeholders. The proposals seem to mark an effort to modify the positions of different creditor classes in bankruptcy, a move that could disadvantage both senior and junior creditors depending on the particular case.
Equities: Enhancing the Core/Satellite Framework
by Sabrina Callin, Andrew Pyne of PIMCO,
?In a lower-returning environment, investors may need to look beyond traditional active or passive approaches in order to capture equity alpha. The “building blocks” of equity alpha include high active share stock selection, smart beta-based strategies and portable alpha approaches. These complementary sources of alpha can be implemented in an enhanced core/satellite framework to allow investors to pursue the returns needed to meet their objectives.
Positioning U.S. Community Bank Investment Portfolios for 2015
When market uncertainty is elevated and bank profitability is an ongoing concern, taking an extreme view toward investing cash or harvesting liquidity is not optimal. Currently, we do not see as much value in interest rate or duration risk for bank portfolios as yields imply a moderate path for future policy rates. We believe there are opportunities for banks to earn income without taking excess interest rate risk or limiting flexibility against the need to fund future opportunities.
With the Bank of Canada, Is the Canadian Economy in Good Hands?
A disorderly decline in energy prices could spill over into consumer and business sentiment, which would worsen any drop in Canada's economic output. More rate cuts this year are likely a part of the Bank of Canada's base case scenario. Investors may be able to improve their returns by buying bonds with high-quality credit spreads, including Canadian bank senior debt and Ontario bonds.
While the World Is Not Flat, Distributions May Be
?Investors have long relied on the assumption that asset returns are normally distributed with correlations that are slow to change. Based on our analysis, however, we now have flat distributions and correlations that are much less stable; a fat-tailed event to either the left or the right is as likely to occur as a non-event. Active management that recognizes and adapts to these changes will be essential to seeking strong returns in the future.
Why the Bond Market Is Yielding Negative and What Negative Yields Mean for You
by Vineer Bhansali, Ben Emons of PIMCO,
Negative yields on bonds are no longer unicorns. In Switzerland, Germany, Denmark and several other European countries, government bonds are trading at negative nominal yields. There are four potential reasons that can explain the negative yield conundrum and can also illustrate the trade-offs between different investment strategies.
??Why Does the Internet of Things Matter?
The opportunity to gather, process and use data more effectively is potentially worth several trillion dollars across multiple industries over the next decade.
We expect most industries to adopt some form of this technology, with network effects and competitive dynamics leading to almost ubiquitous adoption beyond the current decade.
Repression, Compression, Expression
Cumulative financial repression has led to compressed and recently highly correlated yields in most developed countries, while markets have been volatile as investors react and adjust to the new environment. Recent short-term spikes in volatility belie likely damped volatility at these low rates over time, suggesting a potentially attractive opportunity to sell longer-term volatility at current premiums.
What Does the Current Low Interest Rate Environment Mean for Agency MBS?
by Mike Cudzil, Daniel Hyman of PIMCO,
After the agency MBS market in 2014 was dominated by low volatility, limited prepayment risk and strong performance, the strong rally in U.S. Treasuries in January resulted in just the opposite. With the Fed ending net purchases of MBS in October 2014, it seems unlikely for the private investment community to take the Fed’s place in the MBS market at this level of interest rates and spreads. PIMCO expects the environment for MBS in 2015 to be quite the opposite of 2014, resulting in higher volatility, cheaper valuations and more attractive excess return opportunities for the active manager.
DC Managed Accounts: Shining a Spotlight on Investment Advice
?Nearly one in three defined contribution (DC) plans offers managed account and automated advice services that attempt to enhance investment outcomes with personalized advice. As the Government Accountability Office has reported, however, plan sponsors often have had limited or insufficient information to evaluate and monitor automated advice engines, despite having fiduciary responsibility over advice provided to participants.
Scott Mather Discusses PIMCO’s Total Return Strategy
by Scott Mather of PIMCO,
Bonds have continued to rally so far this year, even as the Federal Reserve contemplates raising interest rates. In the following interview, Scott Mather, CIO U.S. Core Strategies, discusses recent developments in the bond markets, the outlook for the year ahead and the investment implications for PIMCO’s Total Return Strategy. Mather co-manages the strategy with Mark Kiesel, CIO Global Credit, and Mihir Worah, CIO Real Return and Asset Allocation.
The International Ramifications of ECB QE
by Andrew Bosomworth of PIMCO,
By engaging in quantitative easing, the European Central Bank is pursuing its inflation mandate with a vengeance. Overall, we think the combination of quantitative easing, investment and lower oil prices will help eurozone growth reach approximately 1.3% in 2015. Global central bank balance sheets continue to expand: Although the Federal Reserve stopped purchasing assets in 2014, the Bank of Japan and now the ECB have stepped up buying bonds where the Fed left off.
All the Children Are Above Average
by Harley Bassman of PIMCO,
Many investment strategies are centered upon discovering a long-term (average) valuation framework to help in asset allocation and security selection. The term surface of various risk parameters often moves in such a manner that the discounted forward value will point toward this long-term average. If a secular shift has taken place - if all the children are above average, so to speak - then maybe the “average” has changed.
Commercial Mortgage-Backed Securities: Approaching the Later Innings of a Recovery
With the U.S. recovery as a supportive backdrop, PIMCO expects commercial real estate prices to rise 4%-6% in 2015. Commercial mortgage-backed securities issuance has increased for five years, and projections for 2015 are for growth of 20%-30%, driven largely by an increase in maturing loans on the supply side and the continued search for yield on the demand side. The growth in issuance does not come without concern: CMBS underwriting standards will likely continue to slip.
PIMCO Introduces the PIMCO Multi-Strategy Alternative Strategy
by PIMCO,
In a New Neutral environment that anticipates muted returns and heightened volatility, many investors have looked to liquid alternatives in an effort to boost returns and lower overall portfolio risks. Our approach seeks to efficiently combine a range of complementary liquid alternative strategies, offering the potential for diversification and higher return per unit of risk than a single strategy could achieve on its own. This strategy can play a central role in liquid alternatives allocations or be used as a stand-alone complement to traditional stock and bond allocations.
Opportunities and Risks for Investors After the Oil Price Slump?
by Daniel Lacalle of PIMCO,
What we are seeing now is that oil prices, when OPEC refuses to balance the market, test the marginal cost of production, and costs fall. Some of the costs of the largest components of oil projects – high-spec sixth-generation rigs, pressure pumping, seismic, completion – have fallen between 20% and 45% in the space of months as overcapacity became evident and capital expenditure was revised downward.
PIMCO Extends Its Dividend Suite With Two New Regional Strategies
by Brad Kinkelaar, Adam Muller of PIMCO,
As is the case with our other dividend strategies, we are unconstrained by benchmarks and focused on generating yield and capital appreciation by finding attractively valued companies that pay appealing dividends today and have an ability and willingness to grow dividends over time.
Municipal Market Update: What's Ahead in 2015
Municipal bonds ended 2014 as one of the best-performing asset classes - buoyed by investors’ search for yield in a low interest-rate environment. For 2015, we are positioned cautiously for greater volatility in the fixed income markets. We currently prefer revenue-backed bonds over most general obligation (GO) debt, as these sectors typically benefit from dedicated revenue streams and do not have the pension challenges that many state and local governments face.
Commodity Outlook 2015: Watching the Supply Response Across Markets?
Today?s low oil prices should allow for supply and demand to come back into alignment by year-end, led by a decline in the U.S. output growth rate and a modest increase in global demand. We expect continued oversupply to weigh on natural gas prices this year, but some semblance of balance may return to this market in 2016. Grain prices may experience pressure in 2015 as low oil prices pass through to corn prices, which may cause producers to switch to higher-priced crops. With production growth likely having peaked, we expect metals prices to stabilize this year.
Time to Get Off the Merry-Go-Round ??
by Jerome Schneider of PIMCO,
In 2014, many investors de-risked their portfolios by moving into shorter-duration passive approaches but the potential for capital preservation from these strategies may face challenges. Passive benchmarks and strategies with pre-specified, structural interest rate exposure may have little to no flexibility around their positioning and may push investors into the heart of the proverbial storm. Active strategies not constrained by benchmark limitations may be optimal for investors as they can seek to manage exposure to interest rates.
ECB Review: Blowing on the Embers of a Reflationary Fire
by Andrew Bosomworth of PIMCO,
?Not to pursue our mandate would be illegal? is how Mario Draghi ended his last press conference of 2014. Mr. Draghi?s first press conference of 2015 began with the announcement of a quantitative easing (QE) programme that pursues the European Central Bank?s (ECB) inflation mandate with a vengeance. And rightly so, for the disinflationary trends in the eurozone had become all the more precarious as economic output and the price of oil continued to fall.
U.S. Lodging: The Recovery Checks In for an Extended Stay
by Ray Huang, Amit Arora of PIMCO,
Relatively high occupancy levels should drive room rate growth in the hotel sector over the next several years, despite some supply entering the market. We see opportunities in certain segments, such as premium hotels and C-corporations, due to high barriers to entry and pricing power.
Wait and See at the Bank of England
UK growth looks to be sustainable, with encouraging domestic demand, though we need to see business investment continue to pick up. Although inflation hovering below the 1% lower tolerance band of the Bank of England (BOE) remains a concern, we think it actually gives the central bank welcome breathing room during a period of uncertainty for the global economy. Looking ahead, we see compelling investment value in the intermediate part of the UK yield curve, namely five- to 10-year bonds, as the BOE plays the waiting game.
What We Are Hearing From Asia-Pacific Investors: Five Themes for 2015
by Eric Mogelof of PIMCO,
Amid lower forward-looking returns, investors are focusing on multi-asset solutions, enhanced beta, income and alternatives in Asia-Pacific. PIMCO is prepared to address these themes, drawing upon our time-tested investment process that combines high-level macroeconomic views with thorough on-the-ground research.
The Swiss National Bank?s Unpleasant Experience of Sleeping Next to an Elephant
On 15 January 2015, the Governing Board of the Swiss National Bank (SNB) unexpectedly exited its minimum exchange rate regime, which it had adopted back in September 2011 when it was fighting sharp appreciation of the Swiss franc in the midst of the eurozone sovereign debt crisis.
Seizing Credit Opportunities When Oil Prices Are Sliding
by Mark Kiesel, David Linton of PIMCO,
?We believe we are moving into an extended period of lower oil prices, and we are actively managing our clients? energy exposure with an eye toward benefiting from recent events. Differentiation between the winners and losers across countries, sectors and individual companies is essential. We currently favor subsectors and companies with strong asset quality, high barriers to entry, solid production profiles and strong balance sheets and liquidity profiles.
The Long Growth Drag From Financial Market Tinkering?
by William De Leon of PIMCO,
Central bankers and regulators have greatly underestimated the negative impact their actions may have on the economic ?multiplier.? Over the next two to three years this miscalculation may settle into a permanent drag on global growth. Forget fears of bloated central bank balance sheets and their potentially inflationary effects ? rather than generating credit in the consumer sector, much of that ?liquidity? is being used to meet new capital requirements.
Recovery Gaining Momentum?
U.S. growth will remain robust over the cyclical horizon due to increasing consumption driven by the narrowing unemployment gap and increase in disposable incomes. The Canadian recovery should continue, though divergent forces ? including the U.S. recovery and oil price declines ? could have significant implications for the economy. Growth will be muted across Latin America, with some economies benefitting from U.S. growth, and others dragged down by the slowdown in the eurozone and China.
Results 1,051–1,100
of 1,661 found.
