Diversifying active risk

Seeking attractive opportunities while minimising risk is the appeal for investors in the PIMCO Global Bond fund, this year’s Global Fixed Income fund winner at Money Management’s Fund Manager of the Year awards.

The $6.8 billion fund was designed specifically as a way to offer Australian investors access to the $100 trillion global bond market. It aims to achieve total returns by investing in global fixed interest including government, corporate and mortgage fixed interest securities as well as non-investment grade and emerging market securities.

The firm said multiple factors had contributed to performance in the past few years; diversification of return drivers, focus on attractive yield opportunities and bottom-up ideas from regional and sectors.

“The fund aims to diversify sources of active risk across a range of risk factors so as to not over-concentrate client assets into specific market risks. This has allowed the fund to successfully navigate periods of volatility and offer a truly diversified source of return for investors,” PIMCO said.

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“We have focused the portfolio in looking for yield opportunities that we think are achievable at minimal to no extra risk for investors. This has been in the form of relative value opportunities we see in certain bond markets across the globe, as well as attractive credit opportunities that have allowed the fund to offer a favourable yield for investors.”

As to how the fund dealt with the recent market downturn, the firm said credit spreads had “tightened meaningfully” and they were optimistic on markets despite trade tensions between the US and China, civil unrest and continued growth challenges.

In terms of its positioning, the fund said it was cautiously positioned and was emphasising liquidity in order to better respond to a variety of possible shocks that could occur.

“In our Global Bond fund, we are modestly overweight headline duration – although global yields are fairly low, we seek relative value opportunities that aim to benefit from an ongoing global grab for duration in the event the economic outlook worsens,” it said.

“While the outlook for inflation is subdued, we continue to hold a moderate allocation to Treasury inflation-protected securities (TIPS) in the portfolio based on attractive valuations and as a hedge against a potential inflation overshoot. We also maintain modest exposure to a diversified basket of emerging market currencies, funded by developed market currencies.”