Bond by Bond

Prepared to Act in Every Market

Mark Kiesel, CIO Global Credit, shares how PIMCO portfolio managers cull ideas from the firm’s bottom-up process to help clients prepare for what’s ahead, such as the rising global consumer.

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Mark Kiesel: The life of as portfolio manager is to always be prepared and that’s not just for things that can go well but also for things maybe that won’t go as well. We always want to challenge our conviction. We always want to look ahead and ask ourselves what could we be missing. Environments are changing; we think markets are going to become more volatile, so having that forward view will make us better decision makers. So this is when we think we’ll thrive. I’m Mark Kiesel, I’m CIO, Chief Investment Officer responsible for overseeing global credit at the firm.

PIMCO’s bottom up process is a key component of our overall investment process at the firm. As a portfolio manager I’m very focused on equity moves, price moves, as analysts they're very focused on fundamentally is anything deteriorating or improving. That teamwork is really invaluable and that's how we ultimately come across our ideas, and ultimately what we want to buy and sell in the portfolios.

We have a top picks and pans meeting every month and it involves a series of about five or six meetings around the world with over a hundred portfolio managers and analysts. And that essentially is the roadmap for all portfolio managers at PIMCO, what to buy what to sell across investment grade, high yield, bank loans, emerging markets. And in fact a lot of the alpha at PIMCO has come from this process.

What we pride ourselves on is understanding the details; we want to know everything. In our credit portfolios we literally have two, three, four hundred positions so the level and depth of knowledge that's required is significant.

I think some of the most exciting moments for myself at the company have been with the analysts, visiting the companies and really coming up with insights that we saw ahead of others. For example we were early and identified the housing crisis two years before it happened. We thought the inventory problem would worsen. We thought housing could fall 30%, and ultimately it ended up happening.

Also, in the recession, when no one wanted to lend to the banking sector, our analysts were there, helping to essentially recapitalize the banking industry, and because we were there, we were able to negotiate terms and get deals into our clients' portfolios.

One of the things that PIMCO benefits from is having a long-term orientation. As we look out going forward one area of opportunity we do see is in the global consumer: Incomes are rising and in fact as incomes rise people tend to spend more. For example the US consumer, consumer spending accounts for 68% of the economy, in China it's only 53%. China's consumer will come online, they'll expand their wealth they'll take more vacations and that more of China's growth will come from the consumer.

But having that forward view gives us a advantage because we ultimately want to buy companies not based on past results but where they're going. The beauty of this is that all these companies vary. They’re all in different industries in different countries. So the ability of active managers to add value is significant, and that’s something we do at PIMCO. We have very high standards, we want to deliver not only strong, consistent performance but also superior service to our clients.

One of the things we always pride ourselves on is that if we’ve had any success in the past ignore it - wake up every day and earn it, and that’s something we’re very proud of here at the firm.

Disclosures


Past performance is not a guarantee or a reliable indicator of future results.

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. Management risk is the risk that the investment techniques and risk analyses applied by PIMCO will not produce the desired results, and that certain policies or developments may affect the investment techniques available to PIMCO in connection with managing the strategy. Investors should consult their investment professional prior to making an investment decision.

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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