Text on screen: PIMCO
Text on screen: PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized
Text on screen: What are the benefits of investment grade credit?
Images on screen: PIMCO employees in a conference room
Text on screen: TITLE – Potential benefits of investment grade credit: BULLETS – Higher quality yield, Diversification, Lower volatility
Mohit: First is that investment-grade credit offers higher-quality yield in an environment when global yields are low.
Text on screen: Mohit Mittal, Portfolio Manager, Multi-Sector
Longer-term defaults in investment-grade credit tend to be very low. So investors can capture a significant proportion of that yield in investment-grade credit. Second is tied to diversification. Investment-grade credit tends to be less correlated to other investments like stocks and higher yielding credit that investors might have in their portfolios.
And then third is lower volatility.
Full page graphic -- Shows Volatility: First bar shows Investment Grade Credit as 4-5%, second bar shows High Yield as 8-10%, third bar shows Stocks as 15%
Investment-grade credit has a volatility of around 4% to 5% compared to around 15% for stocks and 8% to 10% for higher-credit, risk-oriented strategies.
Thus we believe investment-grade credit, through lower volatility, through diversification, and through higher-quality yield, potentially offers significant value in client portfolios.
Text on screen: Why is active investing important for investment grade credit?
Images on screen: PIMCO employees on the trade floor
Mohit: We think it's extremely important to be an active investor in investment-grade credit.
Text on screen: Shortcomings of indexes, Independent research, Structural factors
Active investment can help avoid shortcomings of passive benchmarks. Passive benchmarks tend to be debt-weighted, meaning the more levered the company is, higher the exposure is in a passive investment. Active investment can focus on sound, bottom-up research to identify companies that go into the portfolio instead of relying on the debt outstanding in the company.
Active investment can also help benefit from structural opportunities that come with the size of the issuers or the individual companies.
Text on screen: How do we help investors in credit?
Images on screen: PIMCO employees in a conference room
Text on screen: Mark Kiesel, CIO Global Credit
Mark PIMCO's edge in credit really revolves around its long-term approach, its depth of resources, as well as its access to issuers. First, we have an integrated long-term investment strategy which focuses on top-down and bottom-up.
Our second edge in credit really comes from the significant depth and breadth of our global resources.
Images on screen: PIMCO employees in a conference room and on the trade floor
At PIMCO we have 130 analysts and portfolio managers, and a dedicated asset management in credit of $600 billion across both public and private credit.
Lastly, we have significant access to issuers in terms of our ability to engage and partner with companies around the world to find unique solutions that smaller firms simply cannot do.
Text on screen: What are the opportunities in credit today?
mages on screen: PIMCO employees in a conference room
Mark: We see three main opportunities today, and I'll go through each of these separately.
Text on screen: Opportunities: 1. COVID-recovery service sectors
Images on screen: Airlines, Cruise ship, Theme parks
Number one, in COVID recovery, consumer service sectors. For example, we like owning airlines, cruise lines, concert and theme parks, particularly as the consumer transitions from goods to service spending.
Text on screen: Opportunities: 2. Real estate
Images on screen: Apartments, Lodging, Timber and building materials
Secondly, we continue to like real estate. Real estate is really a hard asset. It's also an inflation hedge. Specifically we like owning REITs, apartments, lodging, timber, and building materials.
Text on screen: Opportunities: 3. Banks and financials
Images on screen: Financial buildings
And lastly, third, we continue to like owning banks and financials. This is really a pure play on cyclicality as well as the consumer and asset quality.
Text on screen: Key takeaways
Images on screen: PIMCO employees in a conference room
Mohit: We think there are a few key takeaways for investors here.
Text on screen: TITLE – Why investment grade credit? BULLETS – Higher quality yield, Compelling returns, Active investment process
First is that investment-grade credit, through higher-quality yield, low correlation with other investments, and low volatility relative to other risk assets like equities and high-risk credit, potentially offers a significant value in client portfolios.
Second is that active management can potentially offer 100 to 150 basis points of excess return in client portfolios. And then third, PIMCO, through its sound, bottom-up credit research, with the help of a robust, top-down macro process.
Images on screen: PIMCO trade floor
is uniquely positioned to offer that value to clients in investment-grade credit.
Text on screen: PIMCO 50 1971-2021
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 low interest rate environments increase this risk. 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. 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. 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. High-yield, lower-rated, securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. 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.
Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.
There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.
This material contains the 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. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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