Harnessing Market Inefficiencies: PIMCO's Systematic Equity Approach

Text on screen: PIMCO

Footer Overlay: PIMCO provides services only to qualified institutions, financial intermediaries and institutional investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized.

Hi, I’m Usman Ali, the lead quantitative equity researcher and portfolio manager at PIMCO. Today, I’m excited to share how our systematic equity investing approach can help you tap into unique opportunities and seek consistent, long-term returns.

Text on screen: What is PIMCO’s philosophy around systematic equity investing?

At PIMCO, we believe that the stock market is not perfectly efficient. Sometimes, the price of a stock doesn’t match its true value – it might be too high or too low.

Text on screen: Stock mispricings create opportunities for investors to earn excess returns

Images on screen: PIMCO trade floor, Stock market ticker

This creates opportunities to earn excess returns by exploiting these mispricings.

Our systematic approach to stock investing aims to identify these market inefficiencies and persistent sources of return. This is similar to how we actively manage fixed income, an approach that investors know and trust PIMCO for.

Images on screen: PIMCO trade floor

We follow a disciplined, methodical investment process to build highly-diversified portfolios that aim to deliver consistent long-term performance.

Text on screen: How do behavioral finance and data play a role in your approach?

We recognize that human biases can lead to poor investment decisions,

Text on screen: TITLE – Behavioral biases, BULLETS – Panic selling, Loss aversion

such as panic selling during a market downturn or holding on to losing positions for too long.

Text on screen: TITLE – Systematic investing, BULLETS – Unemotional, Data-driven

In an effort to avoid these pitfalls in equity investing, we focus on an unemotional, data-driven approach to building portfolios.

We also believe that relying on a single equity factor, or theme, can lead to prolonged periods of underperformance when that factor is out of favor.

Text on screen: TITLE – Four robust equity themes, SUBTITLE – Data points across nearly 10,000 companies worldwide. The graphic shows four squares representing the four themes of Quality, Momentum, Value, and Growth

So, we use multiple themes – namely quality, value, momentum and growth – in seeking to deliver consistent outperformance.

To tap into potential returns across these themes, we analyze thousands of unique data points across nearly 10,000 companies worldwide. These include traditional metrics such as forward earnings to price ratio, and non-traditional ones like customer-supplier relationships.

Through this analysis, we create dozens of distinct signals or indicators for each stock that are bucketed into our four themes. This helps us identify strong companies that we believe are likely to outperform over the long term.

Text on screen: What is PIMCO’s edge in the systematic equity space?

Our key advantage lies not only in our extensive use of data to systematically select stocks, but also in our differentiated approach to constructing portfolios.

Over half of the signals we use to identify stocks likely to outperform have been developed by PIMCO’s in-house quantitative equity research team.

Text on screen: TITLE – PIMCO’s edge in systematic equities. There are three hexagons. The first one shows 6000+ Unique data feeds, the second one shows 2,600+ Global stocks analysed with company-level quant and textual data, and the third shows 55+ Research, portfolio management, trading, risk, and technology resources

We focus on identifying innovative signals that other managers might overlook, combining these unique signals with traditional ones, like price-to-cash flow. Each signal is based on sound economic principles, backed by strong empirical evidence, and is designed to generate excess returns across various geographies and time periods. This helps us avoid crowded signals and data mining, resulting in greater long-term return potential.

Importantly, PIMCO’s systematic equity strategies are not a “black box” – they are designed to be transparent and easy to understand, providing clarity into how stocks are scored, weighted, and how the overall portfolio is built.

PIMCO’s commitment to innovation, rigorous analysis, and the pursuit of diversified and consistent sources of equity returns, aims to provide attractive outperformance within our balanced and multi-asset products which use our systematic equity strategies.

Text on screen: PIMCO

Disclosures

Past performance is not a guarantee or a reliable indicator of future results.

Equities may decline in value due to both real and perceived general market, economic and industry conditions.

Statements concerning financial market trends are based on current market conditions, which will fluctuate.

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.

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