PIMCO Investments LLC
Managed Accounts

PIMCO Municipal Bond Ladder Strategies

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Objective
Laddered portfolios that seek to generate tax-efficient income and capital preservation by investing in high-quality municipal bonds across sectors and issuers.

Strategy Overview

Highlights

  • Benefits from PIMCO's proprietary credit research, a key advantage in a municipal bond market that has become increasingly complex and subject to credit risk
  • Seeks to improve market access and pricing to provide best execution based on institutional presence
  • Designed to generate an attractive, predictable stream of income with an emphasis on capital preservation; PIMCO's national ladders are exempt from federal taxes while the California ladders are exempt from federal and, in most cases, California income taxes
  • Minimum average portfolio rating of A+ (by either S&P or Moody's)
  • No exposure to issues subject to the alternative minimum tax (AMT) at time of purchase

 

Process & Philosophy

 

Municipal Bond Philosophy

PIMCO focuses on generating tax-efficient income and capital preservation by investing in high quality municipal bonds that are exempt from federal taxes. (In most cases, the California ladders are also exempt from California income taxes.) We seek well-structured municipal bonds that provide appropriate compensation for risks relating to calls, credit quality, liquidity, tax liabilities and market supply-demand conditions.


Investment Process

As with all of our strategies, PIMCO Municipal Bond Ladders for Managed Accounts is guided by our top-down global macroeconomic outlook. Rigorous bottom-up analysis drives the municipal bond selection process and facilitates the identification and analysis of undervalued securities.

PIMCO has been managing municipal assets since 1997 and we are among the largest investors in the space today – our size and breadth in this sector may provide economies of scale benefits for investors, such as pricing and transaction cost advantages.


Portfolio Construction

Our laddered portfolios seek to diversify sector and issuer exposure and are constructed using high quality municipal bonds whose maturities are staggered from one to six, 12 or 18 years – ranges chosen specifically in an effort to add value. For example, the PIMCO 1–6 Year National Municipal Bond Ladder includes a sixth year because most short-term municipal investors buy out to five years. Through this modest extension of duration, we aim to capture the pickup in yield that typically arises from lower demand for six-year issues. Similarly, our 1–12 Year National and California Ladders have the potential to benefit from reduced investor demand for maturities beyond 10 years, and our 1–18 year ladders may provide similar yields to 20-year ladders with lower interest rate risk. Additionally, the portfolio will not invest in municipal bonds subject to the alternative minimum tax (AMT).

Managers

Julie P. Callahan, CFA

Ms. Callahan is a senior vice president and municipal bond portfolio manager in the New York office. Prior to joining PIMCO in 2011, she was a portfolio manager for municipal separately managed accounts at Western Asset (WAMCO). She previously managed the firm's municipal money market funds. Before that, Ms. Callahan was director and portfolio manager for municipal money market funds with Citigroup Asset Management. She has 18 years of investment experience and holds a bachelor's degree from Fairfield 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.

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:
All investments contain risk and may lose value. 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 the current low interest rate environment increases this risk. Current 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. Income from municipal bonds while exempt from federal taxes may be subject to state and local taxes and at times the alternative minimum tax. PIMCO does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax or legal questions and concerns. The credit quality of a particular security or group of securities does not ensure the stability or safety of an overall portfolio.

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. PIMCO and YOUR GLOBAL INVESTMENT AUTHORITY are trademarks or registered trademarks of Allianz Asset Management of America L.P. and Pacific Investment Management Company LLC, respectively, in the United States and throughout the world. © 2015 PIMCO