David Fisher, Product Manager, Core Fixed Income: So what’s the goal of the income strategy?
Dan Ivascyn, Group Chief Investment Officer: Yeah, the PIMCO income strategy is somewhat unique here at our firm, in that its primary objective is a consistent, dividend income or distribution rate over time. But a critical secondary objective is total return or capital preservation. And we don’t think that these are in any way mutually exclusive.
Shots of PIMCO employees working.
We think that you can generate a responsible and a consistent dividend along with preserving capital and even generating incremental or additional total return, to the extent that the markets provide those opportunities.
We accomplished this, you know, while focusing on a few key themes.
One, we look at a global opportunity set. As we look all around the world, we look to leverage all of PIMCO specialists in generating the best income producing ideas that we can across again, nearly all segments of the fixed income markets.
Secondly, we don’t look at a benchmark at all although, you know, in certain versions of the strategy, we’ll have a stated benchmark. You know, typically, the Barclay’s aggregate index. Alfred Murata and I never look at a benchmark when sizing portfolio exposures. Instead, we have a very flexible approach. We use scenario analysis to try to come up with the optimal mix of assets.
And then, the final key theme within the strategy is that we want to put together a best ideas portfolio with an income space, that’s consistent with PIMCO’s top down, more macro oriented views. And at times, that can create a very different portfolio construction than is typically the case across other income oriented alternatives that clients have access to.
And that’s, you know, essentially the strategy over time. In practice, one way that we accomplish this dual objective of consistent income, alongside capital preservation, is to constantly focus on diversification from an asset allocation perspective. And to make sure that when PIMCO is uncertain about economic growth, uncertain about financial markets, that we have a sufficient amount of high quality, more defensive assets, to help temper the volatility that exists across some of the segments of the portfolio that have higher dividend income or interest rates, but a bit more volatility, particularly during more negative scenarios for the markets or the economy.
And by creating the right blend of higher quality, more defensive type of assets, alongside some of the higher yielding opportunities, we can create a portfolio that’s resilient during periods of market stress. So we do, you know, in summary, view this as a global core income oriented strategy, that hopefully can meet the needs and demands of many types of both retail and institutional investment clients.
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