Investment Strategies

Quick Takes: Can De-Risking Portfolios Support Returns Too?

For investors looking to earn income and de-risk portfolios, short-term investments may be an attractive opportunity. Portfolio manager Jerome Schneider discusses why an allocation to the asset class should be more than an afterthought.

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Jerome Schneider: My name is Jerome Schneider, head of the short-term portfolio strategies here at PIMCO.

For investors, the past few months have been quite volatile and as a result, many investors are looking to de-risk their portfolios.

We’ve seen an increase of over 300 billion dollars of assets, specifically into traditional money market funds as a result over the past year.

In fact, the curve has flattened tremendously between the two-year and the ten-year note.

What investors don’t understand is that they actually might stay in these money market funds strategies much longer than they had typically expected.

And so, for investors looking to earn a little bit more income, the front of the yield curve offers traditional opportunities that we haven’t seen for quite a while simply because they’re taking less interest rate risk than the longer end of the yield curve, but earning approximately the same yield.

The current environment has created a unique opportunity for the short-term universe.

Significantly higher yield potential than just three years ago, with considerably less duration risk than the longer end of the yield curve.

Investors need to be focused on active management possibilities for that de-risking portfolio.

Traditionally, investors have simply looked at the yield and sought to achieve some type of de-risked return.

But really, the focus of the opportunity these days is on total return; the composition of income plus opportunities for capital appreciation along the way.

That total return produces incremental opportunities.

So, for us, active management is a clear differentiator for investors who want to be thinking about preserving liquidity, maintaining capital preservation, defending themselves against market volatility, and also having some income along the way.

So, at this point in time, these strategies are effectively not just an afterthought, but an actual active allocation to your portfolio strategy.

Given the flat yield curve, given the opportunity for total return, this is an opportunity in the uncertain environment that is potentially ahead of us.


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 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. Management risk is the risk that the investment techniques and risk analyses applied by an investment manager will not produce the desired results, and that certain policies or developments may affect the investment techniques available to the manager in connection with managing the strategy.

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.

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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