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PIMCO Real Return

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Strategy Overview

Highlights

  • A core inflation protection, or real return, strategy that invests primarily in high-quality inflation-linked bonds, including Treasury Inflation-Protected Securities (TIPS).

  • Targets a portfolio that offers liquidity, low credit risk, and a direct link to inflation--which can help investors keep pace with the rate at which costs are rising.

  • Can contribute to overall portfolio diversification because other financial assets, such as stocks or nominal bonds, may underperform in periods of higher inflation.

  • Use of a PIMCO managed commingled fund within the portfolio allows for greater diversification potential than smaller separate accounts could otherwise achieve.

 

Process & Philosophy

 

Real Return Philosophy

All of PIMCO’s real return strategies rely on our core competency in fixed income management, with the objective of maximizing real return while seeking preservation of the real capital of a portfolio. We believe that an active approach works in managing inflation-linked bonds, just as active management can add value in other sectors of the bond market. True to PIMCO’s core investment process, we rely on multiple value-adding sources to potentially enhance Real Return portfolio performance, rather than allow any single strategy to dominate returns. PIMCO has been investing in inflation-linked securities since the early 1990s and has taken a leading role in developing products and investment strategies that focus on them. We launched our Real Return strategy in 1997-the same year that TIPS were introduced.
 

Investment Process

Our investment process utilizes both “top-down” and “bottom-up” strategies. Top-down strategies are deployed from a macro view of the portfolio driven by our secular outlook of the forces likely to influence the economy and financial markets over the next three to five years and our cyclical views of two- to four-quarter trends. Implementation in portfolios is effected by selecting securities that achieve the designated objectives. Bottom-up strategies drive our security selection process and facilitate the identification and analysis of undervalued securities. Here, we employ advanced proprietary analytics and expertise across the global fixed income markets. The objective is to combine perspectives from both the portfolio and security levels to consistently add value over time within acceptable levels of portfolio risk.
 

Portfolio Construction

PIMCO Real Return managed account portfolios are constructed with two components: a core segment of individual bonds that act as a foundation, and a PIMCO-managed sector-oriented commingled vehicle. The core segment represents approximately 55% of the overall portfolio, and focuses on TIPS and other high quality, liquid fixed income securities. The commingled component represents approximately 45% of the portfolio and invests in bonds of varying duration and credit quality – wherever portfolio management finds attractive, risk-adjusted real return potential.

 

Managers

Mihir P. Worah

Mr. Worah is CIO Real Return and Asset Allocation and a managing director in the Newport Beach office, a portfolio manager, and head of the real return and multi-asset portfolio management teams. Prior to joining PIMCO in 2001, he was a postdoctoral research associate at the University of California, Berkeley, and the Stanford Linear Accelerator Center, where he built models to explain the difference between matter and anti-matter. In 2012 he co-authored “Intelligent Commodity Indexing,” published by McGraw-Hill. He has 12 years of investment experience and holds a Ph.D. in theoretical physics from the University of Chicago.

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; investments may be worth more or less than the original cost when redeemed. 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. Treasury Inflation-Protected Securities (TIPS) are ILBs issued by the U.S. Government. 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. 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. Diversification does not ensure against loss.

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