PIMCO: Why Our Returns Are Even Better Than They Seem

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A lot has been going on at PIMCO lately……..Here is the latest in what seems to be a sort of PR piece, check it out.


Given PIMCO’s focus on risk-adjusted returns, it is important to note that when the Total Return Fund is compared with peers, the comparison is often with funds whose investment guidelines permit greater exposure to high-yield bonds, which are not part of the BAGG. The Total Return Fund’s guidelines permit up to 10% exposure to high-yield bonds, which is among the lowest in the category.


To be sure, high-yield bonds have outperformed investment grade bonds for the past 1-, 3- and 5-year periods – by as much as 6% a year in the case of the 5-year period.

Yet we believe the lower reaches of the credit markets have become somewhat frothy. Credit spreads are back nearly to 2007 levels, and there are a variety of worrying trends. Among them: The return of 100% loan-to-value loans that were a feature of the zero-down subprime and the Alt-A lending sprees that ended abruptly in 2008; loan covenants that have weakened dramatically as managers reach for yield; a tightening of secondary liquidity; and often questionable calculations of net debt on corporate balance sheets.

We see opportunities to generate potentially attractive returns in many quarters of the global marketplace of bonds. However, we believe a disciplined, long-term approach that emphasizes risk-adjusted returns is indispensable.

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Certainly, recent trends in the bond markets have underscored the merits of this focus.

It was on 22 May 2013 that “taper” became the buzzword – and virtually overnight, higher interest rates the zeitgeist. The intensity and magnitude of the change in investor sentiment, as measured in mutual fund flows, were truly unprecedented. After a strong quarter of inflows into bond funds in the first quarter of 2013, outflows through the rest of the year offset earlier inflows, in what would become the largest wave of outflows from bond funds on record.

Full article here http://www.pimco.com/EN/Insights/Pages/Comparative-Advantage.aspx

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