Generating Returns Through Market Cycles with PIMCO’s Balanced Income and Growth Strategy (P-BIG)

Watch now: Portfolio managers Emmanuel Sharef and Erin Browne share insights into P-BIG

Q: What motivated PIMCO to develop this new balanced strategy?

A: Given the global nature of PIMCO’s business, we are constantly evaluating shifting investor preferences across regions to better serve our clients. In recent years, we noticed the distinct need for income-generating investment solutions. In response, we designed P-BIG, an all-weather 60/40 balanced income strategy that we believe is a compelling solution for investors seeking attractive income and long-term growth potential.

When developing P-BIG, we carefully considered the trade-off between risk and return in an income-generation context. Stocks and bonds each provide distinct benefits as well as risks. Importantly, their returns tend to move in opposite directions (i.e. when one goes up, the other goes down). Our research shows that allocating 60% to stocks and 40% to bonds offers investors an attractive balance of risk and return over the long run, whilst providing diversification and compelling income.

With a 60% stock/40% bond portfolio, P-BIG offers a moderate level of risk, attractive income, and growth potential, with less risk than stocks alone and greater return potential than bonds alone. We believe this diversification creates greater portfolio stability in times of elevated uncertainty and provides a smoother path of income generation and total return.

We further enhance P-BIG’s value proposition with the ability to make modest, flexible adjustments to its exposures based on PIMCO’s macroeconomic views We believe this can reduce risk in uncertain times and improve returns in a variety of different market environments.

Q: How does P-BIG compare to other balanced solutions?

A: While there are many multi-asset income strategies available in the marketplace, we believe P-BIG is different.

Looking at the market, we observe four main trends among other offerings:

1. Stock allocations tend to focus on a specific “style” (i.e. value or growth), sector (i.e. information technology), or country (i.e. the U.S.), resulting in less consistent returns over time and greater concentration risk.
2. Bond allocations tend to focus mostly on corporate high yield or other riskier sectors – which exhibit a high correlation to equity markets – in search of yield. This increases the overall risk in a balanced portfolio and potentially overexposes investors to downside risk in adverse conditions.
3. Many strategies rely on a static asset allocation that lacks the flexibility to adapt to changing market environments.
4. Some strategies prioritize unsustainably-high income distributions over long-term stability.

Based on these observations, we designed P-BIG to be global, high quality, diversified, flexible, and balanced, avoiding style biases and single sector or country concentrations to prudently manage risk.

Q: Could you explain how PIMCO’s proprietary equity strategy works and the benefits it brings to P-BIG?

A: Designed in-house by PIMCO’s quantitative researchers, P-BIG’s diversified equity strategy seeks to maximize total return across market cycles. By investing in a broad range of companies across different regions, countries, sectors and industries, the strategy also provides global diversification and smoother returns.

Its highly disciplined investment process is unemotional and systematic, using a repeatable approach to enhance performance and avoid common investor biases that can diminish returns. Powered by our extensive quantitative equity research, the strategy seeks to consistently select future winners and avoid future underperformers in the stock market by systematically building a portfolio that only owns stocks with the most favorable indicators of future returns. Its systematic approach is enhanced over time through dedicated research that evolves the active investment process to generate greater performance consistency.

Ultimately, the strategy seeks to provide P-BIG investors with a highly consistent equity allocation that creates a smooth path to outperformance over time.

Q: Investors know and trust PIMCO for its flagship Income Strategy. Does P-BIG’s bond allocation take a similar approach?

A: P-BIG takes a similar approach in that it does not focus on any one bond sector or industry to generate returns. Instead, it leverages PIMCO’s global resources to invest across the +$135 trillion global bond market^Footnote[i], using a wide range of bond types, such as government, corporate, and securitized bonds.

We believe that this multi-sector approach should provide a consistent stream of income and potential for long-term returns, as well as greater diversification and an enhanced ability to weather a range of economic and market environments.

Q: PIMCO is known primarily for its fixed income expertise. Tell us more about PIMCO’s capabilities and experience in managing equities and asset allocation portfolios.

A: While PIMCO is renowned for fixed income, we have been managing asset allocation strategies for more than 20 years, with US$37 billion in AUM in our global asset allocation complex today^Footnote[ii]. Similarly, we began managing equities in 1986, and today we manage US$33 billion in equity AUM^{Footnote[iii]}. Our research in quantitative equity investing has yielded a global, proprietary investment approach for use across our quantitative and asset allocation investment strategies, including P-BIG.

P-BIG is supported by the full depth and breadth of PIMCO’s resources, including:

• Asset allocation, fixed income, and equity portfolio management teams;
• Portfolio implementation, analytics, and quantitative teams; and
• Our extensive sector specialty desks, credit research analysts, cross-asset research analysts, and global equity trading desk.

We believe P-BIG is a natural evolution of our asset allocation suite that draws on PIMCO’s macroeconomic views, income-generation expertise, and dedicated equity capabilities.

Q: Why should investors consider P-BIG in the current environment?

A: Looking ahead, we expect continued economic uncertainty, geopolitical risk, and more volatile business cycles. We believe global growth will disappoint over the next five years, and we expect investment returns across asset classes and geographies to be more differentiated in this new era.

Against this backdrop, we believe P-BIG’s active, global approach positions it well for a broad set of macroeconomic and market outcomes. P-BIG is designed to serve as a source of stability in investors’ portfolios by generating attractive income and total return through all stages of the economic cycle and in all market environments.

The portfolio managers for the PIMCO Balanced Income and Growth strategy are Emmanuel Sharef and Erin Browne.