What is the PIMCO LDI Core Plus Strategy?
In an LDI Core Plus strategy, PIMCO actively manages a fixed income portfolio directly against client liabilities (rather than against a market benchmark) on an ongoing basis. We have extensive experience managing assets against a wide range of liabilities:
We follow a three-step process when managing LDI Core Plus portfolios:
Step 1 – Analysis of Liability Cash Flows The first step involves determining the risk characteristics of the liabilities by analyzing the risk factors, such as duration, convexity and curve positioning, that largely dictate the liability cash flows. We focus on liability risk factors rather than liability cash flows because this allows us to focus on managing the key drivers of liability risk. The main advantage is that transaction costs are likely materially lower than for cash flow matching portfolios, yet equally effective in matching liability risks. Also, cash flow matching solutions are subject to inaccuracies because liability cash flows are an actuarial estimate of future benefit payments and actual benefit payments are likely to differ from the estimates to some degree. Step 2 – LDI Benchmark (or Strategy Combination) Next we work with the client and the investment advisers to construct a benchmark with the same key risk characteristics as the liabilities. We use our internally developed asset-liability analysis tool, OptimizerTM, to combine fixed income indexes, individual securities and swaps to construct this LDI benchmark. We also manage mandates vs. benchmarks specified by clients and their advisers; in that case we generally do a shadow analysis on the benchmark as a doublecheck. Once the benchmark has been determined, we manage the fixed income assets according to our proven active investment process.
Step 3 – Actively Managed PortfolioAfter the benchmark (or the strategy combination) has been agreed upon with the client, we manage the assets according to our usual active management process. PIMCO has close to 40 years’ experience managing active fixed income mandates, with principally the same investment philosophy and process. Our approach revolves around the principle of diversification: We believe that no single strategy should dominate returns. By diversifying strategies, or relying on multiple sources of value, we are able to generate solid return potential and target a higher degree of consistency. We seek to add value through the use of top-down strategies such as our exposure to interest rates (duration), changing volatility ranges, yield curve positioning and sector rotation. We also employ bottom-up strategies involving analysis and selection of specific securities.The first and most important step in our process is to get the long-run outlook right. We believe that analyzing secular economic and political influences is fundamental to sound portfolio decisions. The next step in our process is the analysis of cyclical or business cycle trends. Based on our secular and cyclical views, our portfolio managers construct client portfolios.Bottom-up security selection is driven by sector specialist portfolio managers charged with determining relative value within their sectors. These specialists rely on PIMCO’s expert team of seasoned analysts who conduct independent security analysis. PIMCO also uses an extensive library of proprietary analytical software to help quantify risks and relative value in different securities.
The information on this web site is for residents of Europe only.
All material contained on the Exchange-Traded Funds section of this website is purely for informational purposes only and is not intended as investment advice. Investors should seek financial advice before making any investment decisions.
The products and services are available only to residents of those jurisdictions. The information on this web site does not constitute an offer for products or services, or a solicitation of an offer to any persons outside of Europe who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence. Copyright ©2017 PIMCO Europe Limited. All rights reserved.
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