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Pursue Diversification and Return with PIMCO’s Quant Strategies

While there are many ways to diversify portfolios using traditional strategies, consider the merits of a disciplined, quantitative investing approach to pursue potential sources of attractive returns in 2023.

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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 is quantitative investing?

Nick: Quant investing involves detecting persistent patterns and

Text on screen: Nick Granger, Portfolio Manager, Quantitative Analytics

behavioral anomalies in financial markets that can be exploited through systematic, often automated strategies. The effects these strategies are built on are underpinned by rigorous research, rooted in financial theory and statistical techniques.

Quant strategies are based around rules that not only identify the effect, but also specify the trading rules in advance, aiming to remove predictable human biases from the investment process.

One of the main differences between quant and discretionary strategies is that discretionary traders tend to think in terms of individual trades, which are typically high conviction, but relatively few in number.

Text on screen: TITLE – The power of quantitative investing, BULLETS – Increased scale and diversification SUB-BULLETS – Ability to deploy a large number of trades, Extract and exploit small statistical edges, BULLETS – Potential for near-instantaneous response to new information, Flexibility to leverage both automated and manual trading

the power of quant is in its much greater capacity for scale and diversification. Quant strategies typically deploy a much larger number of trades, often using automation, to trade hundreds or even thousands of individual assets,

In particular, this gives the ability to extract small statistical edges that may be very difficult for more discretionary or manual processes to exploit..

Systematic trading doesn't always have to mean fully automated. Some processes, particularly higher frequency strategies in more liquid markets, can be fully automated, taking humans totally out of the loop.

This means strategies can respond almost instantaneously to new information and dynamically size positions in real time.

Other strategies will have trades generated in the same systematic way, but may rely on human traders where we have evidence that this route offers better execution, or where markets are still voice traded.

And finally some strategies will have a more hybrid approach, where the core signal generation remains broadly systematic. But the execution process allows for some flexibility for traders to feed back liquidity information and access back to the strategy.

In all cases, quant investing is a relatively resource intensive approach to investing, and it benefits from economies of scale.

Text on screen: Quants rely on research, execution and infrastructure to improve strategies over time

Images on screen: PIMCO trade floor

Quants rely on vast amounts of research, execution, and infrastructure, to develop, execute, and improve strategies over time.

Text on screen: How can PIMCO’s approach benefit investors?

At PIMCO we're focused on expanding our team of dedicated quant PMs, but also on ensuring there is close and ongoing collaboration between the quant PMs and the vast global resources available at PIMCO. For example, our 17 dedicated quant PMs work closely with a broader group of over 300 portfolio managers focused on individual markets, and 70 plus dedicated portfolio analytics team that conducts quantitative research for the broader firm.

Text on screen: PIMCO’s deep resources allow the quant team to build differentiated strategies

Images on screen: PIMCO trade floor

These resources give PIMCO's quant PM team the ability to reach deeply into the areas of expertise covered by the firm's broader resources, and build differentiated strategies in areas such as credit, commodities, and interest rates.

PIMCO's been trading asset classes like credit, and mortgages, and swaps, for decades. And by working with our specialists, we can gain a truly nuanced understanding of how to build and manage models across these asset classes.

We're able to design strategies with specific characteristics, such as emphasizing defensiveness or positive skewness, or controlling the betas to equities and other major risk factors. For example, trend following strategies are naturally defensive, for well-understood fundamental reasons, with positive skewness and negative equity correlations in bear markets. This can be useful for investors seeking diversification within broader portfolios.

Other strategies may exhibit more short volatility profiles or contain truly idiosyncratic risk, allowing PMs to blend together content to produce diversified portfolios of strategies.

Images on screen: PIMCO trade floor

Ultimately, quant investing requires significant research in advance, and can offer investors diversified sources of risk and return that can be valuable across their portfolios.

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

Text on screen: PIMCO

Disclosure


Quantitative models evaluate securities or securities markets based on certain assumptions concerning the interplay of market factors. Models used may not adequately take into account certain factors, may not perform as intended, and may result in a decline in the value of your investment, which could be substantial. All investments contain risk and may lose value. Diversification does not ensure against loss.

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 long-term, especially during periods of downturn in the market.

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, The Investment Trusts Association, Japan and Type II Financial Instruments Firms Association. 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 (110) Jin Guan Tou Gu Xin Zi No. 020. 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. ©2023, PIMCO.

CMR2023-0106-2668073

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