PYLD in 5
Text on screen: PIMCO
Text on screen: PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized.
Text on screen: Adam Browne, Head of ETF Sales
Browne: At PIMCO, we have been diligent and intentional about expanding our ETF platform in recent years, launching 6 new products, growing assets to $27 Billion dollars.
Text on screen: PYLD in 5 with Sonali Pier and Adam Browne
Our latest ETF – PIMCO Multisector Active Bond ETF, Ticker Symbol P-Y-L-D, which turned one year old in June of 2024, has quickly become one of our fastest-growing ETFs, and becoming a fixed income staple in many investors’ portfolios. My colleague and Portfolio Manager Sonali Pier will review the market opportunity and why PYLD may be a fit for Fixed Income investors.
Text on screen: Market Dynamics & Fixed Income Implications
Text on screen: Sonali Pier, Portfolio Manager, Multi-sector Credit
Pier: In today's market environment, we'd highlight three themes.
Text on screen: Diverging growth / Shifting monetary policy / Elevated uncertainty
First, divergent growth. Global economies are adjusting at different speeds leading to potentially diverging asset class performance across global markets. Second, shifting monetary policy. We're moving on from the steepest rate hiking cycle in decades to an environment where we're seeing many central banks cut or planning to cut rates including the US. And third, elevated uncertainty with heightened economic and geopolitical uncertainty. We're preparing portfolios to be defensive and resilient in a wide number of scenarios.
FULL PAGE GRAPHIC: Fixed income performance across cutting cycles
The graphic shows Sonali on the left, and a chart on the right showing three bars measuring Cumulative Returns for 3-month Treasury bills (or T-bills), Multisector bonds, and Core Plus bonds three years following peak interest rates. From left, a white bar represents 3-month T-bills with a 17.4% return, a purple bar represents Multisector bonds with the second-highest return of 26.7%, and a green bar represents Core Plus with the highest return of 32.9% return.
These factors lead us to several investment implications.
One, investors may want to rethink cash allocations as more central banks move to cut rates yields across cash allocations may go down and cash investors will miss the capital appreciation opportunity from duration. Two, consider the global landscape. With the potential for divergent economic outcomes. It's important to have the flexibility to look for opportunities globally and three, activist critical with more dispersion and uncertainty in markets. It's important to be selective and shift when opportunities present themselves while keeping an eye on total portfolio construction and correlations.
Text on screen: Current areas of PYLD focus
We launched our active multi-sector credit ETF P-Yield, ticker PYLD in June of 2023. Looking to capitalize on market environments like the one we're facing today.
Text on screen: Benchmark agnostic, multisector strategy
PYLD is a benchmark agnostic multi-sector strategy designed to look for relative value globally across fixed income markets.
It focuses on spread sectors, those that offer additional yield above government bonds with interest rate exposure between two and eight years. It offers active duration management so we can position the portfolio for changing interest rate environments, especially today as central banks are cutting rates at differing paces.
FULL PAGE GRAPHIC: PYLD exposure to sectors hard to passively replicate
The graphic shows Sonali on the left, and a chart on the right showing PYLD’s portfolio bond exposure (PBE), with 48% exposure to Emerging Markets, Bank Loans, Securitized Credit, and High Yield, which are parts of the market investors may not be able to access as part of a passive ETF.
Lastly with a broad mandate, we seek to offer investors exposure to parts of the market such as securitized credit, which they may not be able to access as part of a passive ETF.
We are being very discerning in this market and utilizing the broad opportunity set across fixed income asset classes.
FULL PAGE GRAPHIC: Agency MBS spreads
The line chart shows Agency Mortgage-Backed Securities (MBS) spreads versus a composite of Treasuries, measured in basis points (bps) from 1996 to August 2024. During this period, the spreads have risen steadily from their lowest point in 2020 of approximately -55 bps to a high of approximately 115 bps in 2023, settling at approximately 75 bps as of August 31, 2024.
Our high conviction views in the portfolio are in mortgages and securitized credit for two reasons. One, mortgages are trading wide given the federal reserve exiting their positions and banks are not in a position to hold so much on their balance sheets. Agency mortgages have an implicit government guarantee and the securities are liquid.
Two, in structured credit and asset backed securities valuations are relatively cheap versus historical levels and versus corporates and all the while offering hard collateral security. We do hold investment grade and high yield corporate credit, but are towards the lower end of our long-term allocation range. While most companies have been relatively strong fundamentally, valuations are fair to tight versus historical levels. In more opportunistic areas like emerging markets and bank loans, we're still cautiously positioned and waiting for them to cheapen before we add materially.
FULL PAGE GRAPHIC: Duration allocation history
The line chart shows PYLD’s duration allocation history based on a duration range of two to eight years, as measured on the left-hand scale. PYLD’s duration position is around the middle of the range, showing a duration position of 5+ years in June 2023, dropping to slightly below 5 years from around November-December 2023 until around March 2024. As of August 31, 2024, PYLD’s duration position was at 4 years.
We're being active in duration as well. We have a two to eight year range and are in the middle of this and we've been tactical recently amidst the volatility. We believe that having a healthy duration position is warranted to offset the credit exposure in the portfolio.
very excited about this dynamic offering and multi-sector fixed income, which marries the top down themes with the bottoms up selection.
Text on screen: How our clients are using PYLD
Browne: By design, PYLD has an exceptionally broad mandate, the investment opportunity set spans areas of fixed income - from treasuries and mortgages to corporate credit and even international bonds. We see investors using PYLD in 3 distinct ways:
Text on screen: Diversification
Potential roles: First, Diversification - simply put, PYLD is a portfolio of bonds and as a result, it has natural diversification characteristics relative to risk assets, like global equities.
Second, PYLD is an attractive complement to duration constrained core portfolios,
Text on screen: Flexibility
PYLD adds additional securities and sectors with far more flexibility than a passive index like the Bloomberg aggregate bond index.
Text on screen: Yield
And lastly, yield, given the reset in interest rates over the last few years, investors can now find an attractive level of yield without compromising on credit risk.
We hope you’ll consider PYLD, PIMCO’s Multisector Bond Active ETF as an allocation in your portfolios. Please reach out to your contact at PIMCO or visit PIMCOetfs.com to learn more.
Text on screen: For more insights and information, visit pimco.com
Text on screen: PIMCO
Disclosures
Information is as of 12 September 2024, unless otherwise stated.
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