Mark Kiesel, PIMCO Opalesque Industry Update - PIMCO, a leading global investment management firm, has launched the PIMCO GIS Credit Absolute Return Fund for investors seeking a global, diversified strategy that is focused on absolute return and not constrained by a benchmark. The PIMCO GIS Credit Absolute Return Fund, which has a “go-anywhere” investment style and can employ a wide range of investments, is managed by Mark Kiesel, a managing director and global head of corporate bond portfolio management.
The fund seeks out long-term, strategic investments as well as shorter-term tactical opportunities in an effort to provide positive returns in any market environment. It is designed to enable investors to diversify their fixed income allocation without being tied to risks PIMCO believes can be embedded in a benchmark. The PIMCO GIS Credit Absolute Return Fund will draw on PIMCO’s global credit expertise, proven investment process, research and risk management techniques to provide an absolute return strategy for investors looking for diversification from traditional long-only funds.
“PIMCO’s investment process guides our macroeconomic view and helps enable us to identify risk factors across all fixed income markets,” Kiesel said. “We couple this top-down view with a vigorous bottom-up analysis to seek the best long and short credit positions in every part of the fixed income market, from investment grade credit, high yield, emerging market credit and bank loans to convertible and municipal securities.”
Added Kiesel: “This strategy can pivot in order to help achieve the absolute return objective. For example, the strategy can take on greater exposure to credit when spreads are attractive and, conversely, reduce overall exposure when necessary and instead focus on relative value between credit sectors.”
The fund has been added to PIMCO’s UCITS compliant Global Investor Series (GIS) fund range. This Dublin-registered range now comprises 44 sub-funds with £53 billion (€61 billion, $82 billion) under management as of 30 September, 2011. With daily liquidity, investors can gain exposure to a broad range of asset classes, from the more traditional global and regional core fixed income funds, through credit portfolios, to asset allocation and alternative solutions. The funds are accessible in a variety of share classes in different currencies, depending on client requirements.
Institutional shares of the PIMCO GIS Credit Absolute Return Fund will trade under the ticker symbol PIMCIUA.
Interview: Portfolio manager Mark Kiesel introduces the credit absolute return strategy
Q: What is the PIMCO Credit Absolute Return Strategy?
I view this as a highly focused, “top-picks” global strategy, with strong conviction backing each and every position. As a result, where another strategy might contain 100 to 150 issuers, we may hold half that total, but they would represent what we believe are the most attractive global credit opportunities available at a given time.
Q: Why introduce this strategy now?
In the U.S., for example, the private sector of the economy continues to deleverage and interest rates are low and have recently declined. While earnings growth has been slowing amid subpar economic growth in the developed world, we believe many multinational companies have the potential to do well due to strong balance sheets and significant exposure to emerging markets. Many companies in the energy, metals, oil field services and certain resource sectors and even some global auto companies have generally seen a significant turnaround since the recession. A variety of businesses have cut costs and enjoyed improved pricing power. For example, airlines have experienced double-digit increases in revenue per passenger mile (over the year ended in July 2011), and apartment real estate investment trusts have been raising rents. Luxury and strong brands have been outperforming vs. lower-end ones with help from healthy balance sheets and rising wealth in emerging markets.
We see potential for significant volatility in financial markets, particularly with what is occurring in Europe and the U.S. as global imbalances and high private and public sector debt levels have been restraining growth. Yet, volatility can lead to opportunities, and we believe PIMCO’s veteran global credit team is well positioned to potentially capitalize when markets dislocate. This strategy gives us exceptionally wide discretion to identify, and take advantage of, relative value opportunities that we may find in bonds and other instruments denominated in various currencies.
And our ability to go short gives us additional tools designed to adjust portfolio risk, depending on our macro views. For example, if we are bearish on a sector, we could utilize credit default swaps with the goal of hedging or potentially profiting from underperformance in a specific industry or sectors we see at risk due to top-down macro-economic risk or bottom-up credit concerns. We also have a wide duration range, down to zero – which can help reduce the portfolio’s sensitivity to interest rate moves.
Q. How does the PIMCO Credit Absolute Return
Strategy differ from long-only strategies or those that
track a credit benchmark?
Indeed, this strategy follows the same general investment process – and is managed by the same team – that has been running PIMCO credit portfolios over the past decade. That forward-looking process has helped PIMCO identify opportunities across global credit markets and be agile in adjusting its risk profile in anticipation of shifting market risks and opportunities. With this strategy, we believe the alpha potential may be amplified by the flexible guidelines.
An example of anticipating risk: It is well documented that PIMCO was cautious on housing well before the downturn and either exited some related assets or took defensive positioning in others such as on home builders. At the time, the hedge positions on home builders were relatively cheap, and the spreads later widened significantly. So not only did PIMCO seek to become more defensive when we identified risk, but we also sought to utilize strategies designed to help clients benefit from wider spreads, leveraging our firm’s top-down and bottom-up research process.
While the strategy will focus on relative value and may take short positions, I want to emphasize that this it is not like a hedge fund; it is not a levered market neutral strategy. This strategy is designed to provide liquidity, transparency and an absolute-return oriented approach to investing in bonds and other credit instruments. However, some clients may view the strategy as a “light” version of a hedge fund strategy given its objective of delivering positive returns across various market environments and its unconstrained approach to investing in global credit markets.
Q. How does PIMCO’s macro investment process inform
The global macro view from these forums helps identify in which countries we see conditions favorable to companies, as well as which industries may outperform or underperform. For example, we continue to forecast healthy economic growth in emerging markets, and we expect that companies with exposure to those markets may be poised to outperform over a secular horizon.
Further, our macro views inform our risk management by identifying regions and sectors facing economic, political or other headwinds.
Q. Could you elaborate on how you typically allocate
between bonds and other financial instruments? How
are you approaching security selection?
Each month our global team of 43 credit analysts and 30 credit portfolio managers (as of June 30, 2011) produce their top picks. I manage the process, meeting with the team about 10 days before month end.
Our top credit picks must pass three tests:
Q. Could you elaborate on how you select specific
companies? How do you build conviction?
We also meet with government officials, including regulators and monetary policy authorities. These are people in charge of monitoring and sometimes shaping industries over the next three to 10 years – for example, ministers of energy and resources in countries such as Russia and Brazil.
Ultimately, our strong conviction stems from how all these inputs are vetted by the highly experienced global corporate bond portfolio management and credit team. We have analysts that have been covering companies for 20 to 30 years. Many of our corporate bond portfolio managers and credit traders remain credit specialists their entire careers. I, for example, have been at the company for 15 years, all but two of which have been focused on credit, as an analyst, trader and portfolio manager. I firmly believe that this depth of collective experience and knowledge helps PIMCO deliver on our commitment to our clients. Corporate website: Source