PIMCO Investments LLC
Managed Accounts
Managed Accounts

PIMCO Low Duration

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Strategy Overview

Highlights

  • Focuses on high quality shorter-term bonds, which provide broad market exposure while maintaining a lower sensitivity to interest rate movements
  • Duration range of 0 to 3 years may offer a yield advantage over short-term bond strategies
  • Employs a variety of value-added strategies in an effort to generate excess returns and effectively manage risk
  • Use of PIMCO-managed commingled fund allows for greater diversification potential than smaller separate accounts could otherwise achieve
  • Emphasizes total return, an approach pioneered at PIMCO over 40 years ago that seeks returns through both income and capital appreciation

 

Process & Philosophy

 

Low Duration Philosophy

Low Duration Managed Accounts portfolios offer the advantage of a core bond investment – delivering broad market exposure – while emphasizing shorter-term securities. With a duration range between 0–3 years, the strategy typically offers a yield advantage over more conservative short-duration fixed income vehicles (money market funds, for example) by capitalizing on a wider opportunity set in order to generate excess returns. Moreover, while more volatile than money market funds, the focus on shorter-duration securities will result in less interest rate risk and lower volatility versus traditional long- and intermediate-term core bond funds.

The strategy employs a total return approach, seeking both income and capital appreciation to generate returns. PIMCO pioneered this philosophy more than 40 years ago and it has been a critical component to the firm’s long-term performance record.

Investment Process

PIMCO is committed to active bond management utilizing a long-term framework, with a focus on delivering alpha (excess returns) over the market cycle. Through its annual Secular Forum, the firm develops a 3–5 year outlook for the global economy, inflation and interest rates, which provides the guardrails for our long-term portfolio construction and positioning. Through our quarterly Cyclical Forums we refine these inputs to help set the near-term portfolio strategy. We combine this macro investment process with rigorous bottom-up analysis, utilizing advanced proprietary tools and the firm’s expertise and presence across global fixed income markets to drive the security selection process. The objective is to combine perspectives from both the portfolio and security level to consistently add value over time with acceptable levels of portfolio risk.

Portfolio Construction

PIMCO Low Duration managed account portfolios are comprised of two distinct components: a core segment of individual bonds that provide a foundation, complemented by one or more PIMCO-managed, sector-oriented commingled vehicles. The core segment represents approximately 55%–60% of the overall portfolio and focuses on primarily investment grade fixed income securities and related derivatives. The commingled component comprises 40%–45% of the portfolio and invests in a wide variety of shorter-term fixed income securities and related derivatives. This innovative structure allows managed account portfolios to model PIMCO’s Low Duration strategy by providing the flexibility to invest across all sectors of the bond market on a cost-effective basis.



Managers

Andrew Wittkop

Mr. Wittkop is an executive vice president and portfolio manager in the Newport Beach office, focusing on Treasury bonds, agencies and interest rate derivatives. He previously worked on the real return desk. Prior to that, he was a portfolio analyst with the global portfolio management team and a product manager for absolute return strategies. He has 14 years of investment experience and holds an MBA from Stern School of Business at New York University and an undergraduate degree from the University of California, Los Angeles.

Jerome M. Schneider

Mr. Schneider is a managing director in the Newport Beach office and head of the short-term and funding desk. Prior to joining PIMCO in 2008, Mr. Schneider was a senior managing director with Bear Stearns. There he most recently specialized in credit and mortgage-related funding transactions and helped develop one of the first "repo" conduit financing companies. Additionally, during his tenure at Bear Stearns he held various positions on the municipal and fixed income derivatives trading desks. He has 18 years of investment experience and holds an undergraduate degree in economics and international relations from the University of Pennsylvania and an MBA from the Stern School of Business at New York University.

The managed account strategies described in this material are offered by Pacific Investment Management Company LLC and are available exclusively through financial professionals. Managed accounts have a minimum asset level and may not be suitable for all investors. Financial professionals seeking more information should contact their managed accounts department or call their PIMCO representative.

The Managed Accounts strategy consists of individual securities and a select combination of proprietary, commingled vehicles. These vehicles are available only through managed accounts utilizing the Managed Accounts strategy and are available by prospectus only.

Past performance is not a guarantee or a reliable indicator of future results. Individual account holdings will vary depending on the size of an account, cash flows and account restrictions. Portfolio holdings are subject to change daily without notice. At any time an individual account managed in this strategy may or may not include securities held by another portfolio. Consequently, any particular account may have portfolio characteristics and performance that differ from another individual account in this strategy.

A word about risk:
Investing in the bond market is subject to certain risks, including market, interest rate, issuer, credit and inflation risk. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations and economic and political risks, which may be enhanced in emerging markets. Sovereign securities are generally backed by the issuing government; obligations of U.S. government agencies and authorities are supported by varying degrees, but are generally not backed by the full faith of the U.S. government; portfolios that invest in such securities are not guaranteed and will fluctuate in value. Inflation-linked bonds (ILBs) issued by a government are fixed income securities whose principal value is periodically adjusted according to the rate of inflation; ILBs decline in value when real interest rates rise. Floating rate loans are not traded on an exchange and are subject to significant credit, valuation and liquidity risk. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market’s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee, there is no assurance that private guarantors will meet their obligations. Derivatives may involve certain costs and risks, such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested.

The value of most bond funds and fixed income securities are impacted by changes in interest rates. Bonds and bond funds with longer durations tend to be more sensitive and more volatile than securities with shorter durations; bond prices generally fall as interest rates rise.

This material contains the current 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.

No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660, 800-387-4626. ©2015, PIMCO