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 some of the challenges that fixed income investors face right now?

Text on screen: Marc P. Seidner, CIO Non Traditional Strategies

Marc Seidner: Navigating the current environment will require a more flexible and nimble mindset than perhaps investors have had in the past.

Text on screen: TITLE – What are some challenges facing investors in the current environment? BULLETS – Rates are low, Unprecedented amounts of fiscal and monetary policy, Inflation risks, Potential for elevated volatility

What are some of those challenges? Rates are extraordinarily low. There is unprecedented amounts of policy, both monetary and fiscal policy in economies and markets right now.

Inflation risk exists. It's not PIMCO's base case, but I think as investors we all have to be respectful of inflationary concerns and upside inflationary risk.

Governments and companies have been extraordinarily opportunistic in issuing a lot of debt at low yields with very long durations. Spreads are very narrow. All this could result in unprecedented volatility in fixed income markets, particularly in traditional betas and benchmark oriented portfolios.

Text on screen: Even in today’s environment, bonds retain their role as a diversifier

Images on screen: PIMCO trade floor

All that said, bonds still retain their traditional role as a diversifier. We just need to think a little bit more flexibly and a little bit more nimbly. Navigating around benchmarks and traditional betas, looking for the best optimal risk adjusted returns, thinking globally, and going where the opportunity exists.

Text on screen: What are some of PIMCO’s high-conviction views that flexible strategies can take advantage of?

2021 has been an extraordinarily volatile year in the bond market. Flexibility is key on capitalizing on some of that opportunity.

Text on screen: TITLE – Examples of opportunities that flexible portfolios can take advantage of: BULLETS – Shifts in interest rates, Intermediate-term US interest rates, Select emerging market local currency bonds, Non-traditional spreads, Housing-related assets, Recovery sectors

A flexible and dynamic portfolio could reduce interest rate duration and actually benefit from the rise in yields that took place from the middle of last year through March of 2021.

When rates rose and got to relatively attractive levels, it was easy to pivot and have more interest rate risk in the portfolios, extend portfolio durations. Where one invests in terms of interest rate risk is very important. The intermediate part of the US Treasury yield curve seems quite attractive to us right now, standing in stark contrast to the back end, longer maturity, longer duration bonds, that seem to have very unattractive risk adjusted return potential right now.

In addition to that there is great opportunity in select emerging market local currency bonds that have underperformed recently given increasing inflation concerns and risks, tightening cycles by central banks. And that may create some opportunity to capitalize.

There's also great opportunity in some of the more nontraditional spread exposures. Traditional benchmark oriented credit spreads and credit betas look quite unattractive at this point. But some of the more nontraditional areas look quite interesting as a means of adding what could be substantial value.

In addition, housing related assets can capture the strong technicals and strong fundamentals that currently exist. And last, and probably not least, would be opportunities in some of the Covid recovery sectors, areas that have lagged the recovery more generally. And that can include hotels, retail, airlines, real estate, and debt issued by those companies and in those sectors of the marketplace.

Text on screen: What are the top 3 takeaways for investors on flexible strategies?

Well first and foremost, a flexible and more dynamic approach to fixed income investing in this environment

Text on screen: Flexibility benefit: May help navigate challenges in the current market

Images on screen: PIMCO trade floor

may actually help investors navigate through some of the challenges in the current environment and the pitfalls associated with traditional benchmark oriented portfolios and traditional bond market betas.

Text on screen: Flexibility benefit: Can help investors meet many different portfolio needs

Images on screen: PIMCO trade floor

Second, perhaps a more flexible, more dynamic portfolio could help an investor meet a myriad or multitude of needs that they might have in their broader portfolio construction. That could be liquidity management, could be capital preservation, could be seeking higher levels of income or potential return, all within the context of the traditional role that bonds serve as a diversifier in a portfolio.

Text on screen: Flexibility benefit:  Can pivot toward areas of opportunity

Images on screen: PIMCO trade floor

And then lastly, a flexible more dynamic strategy may help investors pivot more effectively to areas of opportunity. And certainly can help concentrate portfolios in areas where there are much better risk adjusted return potential than traditional bond market betas or bond market benchmark portfolios.

Text on screen: For more insights and information, visit pimco.com

Text on screen: PIMCO 50 1971-2021

Disclosure

IMPORTANT NOTICE

Please note that this material contains the opinions of the manager as of the date noted and may not have been updated to reflect real time market developments. All opinions are subject to change without notice.

The continued long term impact of COVID-19 on credit markets and global economic activity remains uncertain as events such as development of treatments, government actions, and other economic factors evolve. The views expressed are as of the date recorded, and may not reflect recent market developments.

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. Sovereign securities are generally backed by the issuing government. Obligations of U.S. government agencies and authorities are supported by varying degrees, but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such securities are not guaranteed and will fluctuate in value. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government-agency or private guarantor, there is no assurance that the guarantor will meet its obligations.

Private credit involves an investment in non-publically traded securities which may be subject to illiquidity risk.  Portfolios that invest in private credit may be leveraged and may engage in speculative investment practices that increase the risk of investment loss. The value of real estate and portfolios that invest in real estate may fluctuate due to: losses from casualty or condemnation, changes in local and general economic conditions, supply and demand, interest rates, property tax rates, regulatory limitations on rents, zoning laws, and operating expenses.

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.

Beta is a measure of price sensitivity to market movements. Market beta is 1.

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.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517) is authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963), PIMCO Europe GmbH Irish Branch  (Company No. 909462), PIMCO Europe GmbH UK Branch (Company No. 2604517) and PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 15 of the German Securities Institutions Act (WpIG).  The Italian Branch, Irish Branch, UK Branch and Spanish Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority; and (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and  203  to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication.| PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2). The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Investment Management (Shanghai) Limited Unit 3638-39, Phase II Shanghai IFC, 8 Century Avenue, Pilot Free Trade Zone, Shanghai, 200120, China (Unified social credit code: 91310115MA1K41MU72) is registered with Asset Management Association of China as Private Fund Manager (Registration No. P1071502, Type: Other) | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. | PIMCO Japan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association and The Investment Trusts Association, Japan. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is managed and operated independently. The reference number of business license of the company approved by the competent authority is (109) Jin Guan Tou Gu Xin Zi No. 027. 40F., No.68, Sec. 5, Zhongxiao E. Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.). Tel: +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO Latin America Av. Brigadeiro Faria Lima 3477, Torre A, 5° andar São Paulo, Brazil 04538-133. | No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2021, PIMCO.

CMR2021-1020-1881944