Gain an Active Edge in the Bond Market
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Text on screen: MOHIT MITTAL, CIO Core Strategies
Mohit: I think we start with what we call structural sources of returns in the portfolio. There's, those returns don't necessarily always have to be taking large interest rate risks in the portfolio, but translating macro into, across asset relative value into bottom up opportunities, as well as thinking about correlations.
For example, if you like a stock, there is one equity ticker to buy, if you like a credit, there are 40 or 50 different bonds that you could buy.
Text on screen: DANIEL J. IVASCYN, Group Chief Investment Officer
Dan: Well as know, across all portfolios at PIMCO, and I think we've all been focusing here since really the very, very early days at the firm, is to take advantage of structural inefficiencies in markets. Put simply, taking advantage of industry participants or industry players that are forced to do things for non-economic reasons. Rating is an example. Sometimes people need a rating from a rating agency.
Our own internal view on that rating may be different. Sometimes people are limited as to what maturity they can buy. Money market funds can't extend materially beyond one year, therefore it can create kinks or opportunity in slightly longer maturities. Other regulatory frictions or investor preferences tied to wanting to know exactly when their money's being returned, as opposed to amortizing cash flows that trade wider because of even just a little bit of cash flow uncertainty.
These are just a few examples. When you open up various sources of behavioral bias, there's other areas to take advantage of as well. So, I think the building blocks of the starting place for portfolio construction at PIMCO is to take advantage of those inefficiencies first. It gives you a very nice head start.
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Disclosure
Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed.
Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.
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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