Silver-rated PIMCO Investment Grade Corporate Bond blends thoughtful economic analysis, solid bottom-up research, and price consciousness.
The following is our latest Fund Analyst Report for PIMCO Investment Grade Corporate Bond Fund Institutional Class PIGIX.
PIMCO Investment Grade Corporate Bond's advantages include the tenacity of its veteran lead manager, the support of a large group of corporate managers and analysts, and a versatile process that draws on the firm's robust macroeconomic and fundamental research. It earns a Morningstar Analyst Rating of Silver.
This corporate-focused bond fund has rarely met a market it didn't like. For the year to date through Sept. 30, 2017, the fund's 7.0% gain was roughly 2 percentage points ahead of the Bloomberg Barclays U.S. Credit Index and in front of all other corporate-bond funds with a similar duration profile. Indeed, the fund has only lagged its benchmark in one calendar year out of the past 10; that consistency over shorter periods has produced outstanding long-term results.
Lead manager Mark Kiesel, who has steered the fund for 15 years, draws on the firm's myriad resources for ideas. The macroeconomic analysis that takes place in PIMCO's quarterly forums and regional committees gets translated into guidance by the firm's Investment Committee. Those views inform the fund's overall risk level, interest-rate positioning, and out-of-benchmark exposures, such as its Brazil-heavy 10% emerging-markets stake (as of August 2017). The rigorous fundamental work performed by the team's 50-plus credit analysts, combined with the 20-plus corporate portfolio managers taking the market's pulse, drive the fund's credit selection.
This wide-ranging process means the fund hasn't had to rely on just one or two tactics to succeed. In 2015, for example, its corporate issue selection more than offset the drag from its duration underweighting. But the fund's interest-rate calls, such as a bet on a flatter yield curve, have once more pulled their weight over the trailing 12 months. Longer-term themes--such as an emphasis on the debt of companies poised to benefit from the ongoing U.S. housing market recovery--have paid off in recent years, but the team also deserves credit for quickly mobilizing in response to market dislocations, as it did during the 2015 energy sell-off. That multifaceted approach should continue to serve investors well.
Process Pillar: Positive | Miriam Sjoblom, CFA 10/10/2017
The fund benefits from PIMCO's resourcefulness across the board--including thoughtful macroeconomic analysis, solid bottom-up research, and the managers' price-consciousness--earning a Positive Process Pillar rating.
Benchmarked against the Bloomberg Barclays U.S. Credit Index, this fund focuses on investment-grade corporate bonds. The fund may also hold smaller stakes in nonindex sectors, such as high-yield corporates, developed-markets sovereign bonds, emerging-markets debt, securitized fare, and currencies. As a member of PIMCO's Investment Committee, lead manager Mark Kiesel helps formulate the top-down themes that show up in the fund's interest-rate positioning and sector weightings. PIMCO's corporate specialists then scrub the universe for bottom-up ideas. The corporate team's managers and analysts communicate regularly; Kiesel chairs a weekly meeting in which the entire group scrutinizes portfolio positioning, and he frequently joins analysts on research trips.
A suite of analytical tools helps the managers quickly identify trading opportunities and assess relative value between an issuer's cash bonds across geographies, capital structures, and credit default swaps. Kiesel also uses index CDS, coupled with U.S. Treasuries, to obtain liquid corporate market exposure. Extensive use of derivatives adds complexity to the portfolio, but PIMCO has managed the risks of those positions well.