Investment Strategies

Guiding Investors Through Decades of Credit Cycles

Mark Kiesel, CIO Global Credit, discusses the factors behind PIMCO’s approach to credit investing, and how the firm is well-positioned to seek to deliver alpha for our clients over the long term.

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Mark R. Kiesel, CIO Global Credit:

While I’ve had many roles in my career at PIMCO. Our approach to markets has not changed, and this has translated to two decades, now,

Shots of PIMCO employees in a meeting.

in delivering in our credit strategies.

Scale matters in the credit business. As one of the largest managers of credit assets in the world, we have significant global resources, including over 60 credit analysts, to analyze companies around the world from a fundamental bottom-up perspective, over 40 credit portfolio managers who identify bond by bond and bottom-up security selection opportunities, dedicated quantitative and analytics teams who analyze relative value in the capital structure, and dedicated independent risk management to help PIMCO assess risk-reward across a variety of markets all over the world

Shots of PIMCO employees working.

In our almost 50 years at PIMCO, we’ve been through numerous credit cycles, and we’ve seen some bad situations. Credit can be very humbling at times, but one of the things about PIMCO is we have very disciplined risk management.

Article “For Sale” on screen.

We wrote a paper titled “For Sale” in May of 2006, where we warned U.S. housing prices could fall, potentially a lot, and that it could lead to a recession. A few of our clients wanted to understand why we were running such low risk in our credit strategies.

Series of aerial shots of neighborhoods.

In early 2007, we became convinced U.S. housing prices would fall a lot more than the market was expecting at the time. The underlying fundamentals were starting to deteriorate.

While our approach lagged for a few quarters, finally, in 2008, when fundamentals turned down and this hit hard, we were able to capitalize on numerous investment opportunities for our clients.

Shots from a PIMCO Cyclical Forum.

This period highlighted the importance having a long-term view focusing on bottom-up fundamentals and, importantly, having an independent view, particularly one which was different from the market.

Shots of Mark in meetings and around the office. These to an airplane taking off and shots of a construction site.

Our relationships with companies, which have been built up over decades, help us in assessing the evolving landscape across different sectors and industries, especially during challenging periods and during volatile markets.

Our team of analysts are industry experts who look at credits, high to low rated companies. We cover the entire spectrum of credits across the industry, and we independently rate credits in our portfolios.

Shots of Mark at a forum.

Chart: A chart illustrates PIMCO ratings (A-, B+, BBB-) versus agency ratings (A-, B+, BB) for three hypothetical companies.

Historically, this has led to about a third of our ratings being different from the rating agencies.

Credit markets may face challenges in the decades ahead. There may be segments of the market that suffer permanent capital impairment.

Shots of PIMCO employees working.

But just like in prior credit cycles, we believe there eventually will be repair and recovery.

The path to getting there may not be even, but we believe that by being patient and disciplined, we can continue to try to deliver alpha for our clients over the long term.

For more insights and information visit pimco.com

Disclosure


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

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. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.

The credit quality of a particular security or group of securities does not ensure the stability or safety of an overall portfolio. The quality ratings of individual issues/issuers are provided to indicate the credit-worthiness of such issues/issuer and generally range from AAA, Aaa, or AAA (highest) to D, C, or D (lowest) for S&P, Moody’s, and Fitch respectively.

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) and PIMCO Europe Ltd - Italy (Company No. 07533910969) are authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The Italy branch is additionally regulated by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act. PIMCO Europe Ltd services are available only to professional clients as defined in the Financial Conduct Authority’s Handbook and are not available to individual investors, who should not rely on this communication. | PIMCO Deutschland GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Deutschland GmbH Italian Branch (Company No. 10005170963) and PIMCO Deutschland 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 32 of the German Banking Act (KWG). The Italian Branch and Spanish Branch are additionally supervised by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act and 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 Deutschland 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), Brandschenkestrasse 41, 8002 Zurich, Switzerland, Tel: + 41 44 512 49 10. The services provided by PIMCO (Schweiz) GmbH are not available to individual 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 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 (107) FSC SICE Reg. No.001. 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. ©2020, PIMCO.

CMR2020-0429-1171145

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