Investment Strategies

The Case for Investment Grade Credit

Explore why investment grade credit makes sense over the cyclical horizon and the three important benefits for investors with portfolio managers Mark Kiesel, CIO Global Credit, and Mohit Mittal.

MORE ON INVESTMENT GRADE CREDIT

More from this section

Read Transcript

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 benefits of investment grade credit?

Images on screen: PIMCO employees in a conference room

Text on screen: TITLE – Potential benefits of investment grade credit: BULLETS – Higher quality yield, Diversification, Lower volatility  

Mohit: First is that investment-grade credit offers higher-quality yield in an environment when global yields are low.

Text on screen: Mohit Mittal, Portfolio Manager, Multi-Sector

Longer-term defaults in investment-grade credit tend to be very low. So investors can capture a significant proportion of that yield in investment-grade credit. Second is tied to diversification. Investment-grade credit tends to be less correlated to other investments like stocks and higher yielding credit that investors might have in their portfolios.

And then third is lower volatility.

Full page graphic -- Shows Volatility: First bar shows Investment Grade Credit as 4-5%, second bar shows High Yield as 8-10%, third bar shows Stocks as 15%

Investment-grade credit has a volatility of around 4% to 5% compared to around 15% for stocks and 8% to 10% for higher-credit, risk-oriented strategies.

Thus we believe investment-grade credit, through lower volatility, through diversification, and through higher-quality yield, potentially offers significant value in client portfolios.

Text on screen: Why is active investing important for investment grade credit?

Images on screen: PIMCO employees on the trade floor

Mohit: We think it's extremely important to be an active investor in investment-grade credit.

Text on screen: Shortcomings of indexes, Independent research, Structural factors

Active investment can help avoid shortcomings of passive benchmarks. Passive benchmarks tend to be debt-weighted, meaning the more levered the company is, higher the exposure is in a passive investment. Active investment can focus on sound, bottom-up research to identify companies that go into the portfolio instead of relying on the debt outstanding in the company.

Active investment can also help benefit from structural opportunities that come with the size of the issuers or the individual companies.

Text on screen: How do we help investors in credit?

Images on screen: PIMCO employees in a conference room

Text on screen: Mark Kiesel, CIO Global Credit

Mark PIMCO's edge in credit really revolves around its long-term approach, its depth of resources, as well as its access to issuers. First, we have an integrated long-term investment strategy which focuses on top-down and bottom-up.

Our second edge in credit really comes from the significant depth and breadth of our global resources.

Images on screen: PIMCO employees in a conference room and on the trade floor

At PIMCO we have 130 analysts and portfolio managers, and a dedicated asset management in credit of $600 billion across both public and private credit.

Lastly, we have significant access to issuers in terms of our ability to engage and partner with companies around the world to find unique solutions that smaller firms simply cannot do.

Text on screen: What are the opportunities in credit today?

mages on screen: PIMCO employees in a conference room

Mark: We see three main opportunities today, and I'll go through each of these separately.

Text on screen: Opportunities: 1. COVID-recovery service sectors

Images on screen: Airlines, Cruise ship, Theme parks

Number one, in COVID recovery, consumer service sectors. For example, we like owning airlines, cruise lines, concert and theme parks, particularly as the consumer transitions from goods to service spending.

Text on screen: Opportunities: 2. Real estate

Images on screen: Apartments, Lodging, Timber and building materials

Secondly, we continue to like real estate. Real estate is really a hard asset. It's also an inflation hedge. Specifically we like owning REITs, apartments, lodging, timber, and building materials.

Text on screen: Opportunities: 3. Banks and financials

Images on screen: Financial buildings

And lastly, third, we continue to like owning banks and financials. This is really a pure play on cyclicality as well as the consumer and asset quality.

Text on screen: Key takeaways

Images on screen: PIMCO employees in a conference room

Mohit: We think there are a few key takeaways for investors here.

Text on screen: TITLE – Why investment grade credit? BULLETS – Higher quality yield, Compelling returns, Active investment process

First is that investment-grade credit, through higher-quality yield, low correlation with other investments, and low volatility relative to other risk assets like equities and high-risk credit, potentially offers a significant value in client portfolios.

Second is that active management can potentially offer 100 to 150 basis points of excess return in client portfolios. And then third, PIMCO, through its sound, bottom-up credit research, with the help of a robust, top-down macro process.

Images on screen: PIMCO trade floor

is uniquely positioned to offer that value to clients in investment-grade credit.

Text on screen: PIMCO 50 1971-2021

Disclosure


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. Mortgage and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market’s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee there is no assurance that private guarantors will meet their obligations. High-yield, lower-rated, securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested.

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.

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 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 (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. ©2021, PIMCO.

CMR2021-1124-1935840

Filters: Reset All

Filters

Close Filters Dropdown
  • Tags

    Reset

    Close
  • Category

    Reset

    Bond by Bond
    Careers
    Economic and Market Commentary
    Investment Strategies
    PIMCO Foundation
    PIMCO Education
    View from the Investment Committee
    View From the Trade Floor
    Viewpoints
    Education
    Close
  • Order By

    Reset

    Alphabetical
    Most Recent
    Close
() filters applied

Video Finder

Filter By:
  • Bond by Bond
  • Careers
  • Economic and Market Commentary
  • Investment Strategies
  • PIMCO Education
  • View from the Investment Committee
  • View From the Trade Floor
  • Viewpoints
  • Understanding Investing
  • A
  • B
  • C
  • D
  • F
  • G
  • H
  • I
  • K
  • L
  • M
  • N
  • O
  • P
  • Q
  • R
  • S
  • T
  • W
  • Y
Clear
Tina Adatia
Global and Core Fixed Income Product Strategist
Joshua Anderson
Portfolio Manager, Income and Asset-Backed Securities
Del Anderson
Credit Analyst
Robert Arnott
Founder and Chairman, Research Affiliates
Andrew Balls
CIO Global Fixed Income
Justin Blesy
Asset Allocation Strategist
Meredith Block
ESG Research Analyst
David L. Braun
Head of US Financial Institutions Portfolio Management
Jelle Brons
Portfolio Manager, Global Investment Grade Credit
Nathaniel Brown
Director of the PIMCO Foundation
Erin Browne
Portfolio Manager, Multi-Asset Strategies
Esteban Burbano
Fixed Income Strategist
Grover Burthey
Portfolio Manager, ESG
Libby Cantrill
Public Policy
Stephen Chang
Portfolio Manager, Asia
Devin Chen
Portfolio Manager, Commercial Real Estate
Josh Davis
Global Head of Client Analytics
Laura Deneke
Sr. Vice President, Product Strategist
Pramol Dhawan
Head of Emerging Markets Portfolio Management
Joachim Fels
Global Economic Advisor
David Fisher
Co-Head of Strategic Accounts, U.S. Global Wealth Management
Gene Frieda
Global Strategist
Nick Granger
Portfolio Manager, Quantitative Analytics
Adam Gubner
Portfolio Manager, Distressed Debt
Gregory Hall
Head of U.S. Global Wealth Management
Mary Hoppe
Ray Huang
Portfolio Manager, Real Estate
Daniel H. Hyman
Head of Agency MBS Portfolio Management
Daniel J. Ivascyn
Group Chief Investment Officer
Mark R. Kiesel
CIO Global Credit
Erica Kinsella
Product Strategist, ESG Strategies
Kaboo Leung
Christine Long
Head of Retirement Marketing
Nicola Mai
Portfolio Manager, Sovereign Credit Analyst
Raji O. Manasseh
Equity Strategist
Jason Mandinach
Head of Alternative Credit and Private Strategies
Samuel Mary
ESG Research Analyst
Scott A. Mather
CIO U.S. Core and Sustainable Investments
Kyle McCarthy
Alternative Credit Strategist
Mohit Mittal
Portfolio Manager, Multi-Sector
Alfred T. Murata
Portfolio Manager, Mortgage Credit
John Murray
Portfolio Manager, Commercial Real Estate
John Nersesian
Head of Advisor Education
Roger Nieves
Senior Advisor
Jason Odom
Strategist, Asset Allocation
Rick Pagnani
Head of Insurance-Linked Securities
Sonali Pier
Portfolio Manager, Multi-Sector Credit
William Quinones
Product Strategist
Lupin Rahman
Head of EM Sovereign Credit
Libby Rodney
Steve A. Rodosky
Portfolio Manager, Real Return and Long Duration
Emmanuel Roman
Chief Executive Officer
Steve Sapra
Client Solutions & Analytics
Jerome M. Schneider
Head of Short-Term Portfolio Management
Marc P. Seidner
CIO Non-traditional Strategies
Emmanuel S. Sharef
Portfolio Manager, Asset Allocation and Multi Real Asset
Greg E. Sharenow
Portfolio Manager, Commodities and Real Assets
Anmol Sinha
Candice Stack
Head of Client Management, Americas
Kimberley Stafford
Global Head of Product Strategy
Cathy Stahl
Global Head of Marketing
Christian Stracke
Global Head of Credit Research
Geraldine Sundstrom
Portfolio Manager, Asset Allocation, EMEA
Richard Thaler
Distinguished Service Professor of Economics and Behavioral Science at the University of Chicago's Booth School of Business
Mark Thomas
Account Manager, Global Wealth Management
Jessica K. Tom
Senior Credit Analyst
Eve Tournier
Head of European Credit Portfolio Management
Francois Trausch
CEO and CIO, Allianz Real Estate
Jerry Tsai
Quantitative Research Analyst
Megan Walters
Global Head of Research, Allianz Real Estate
Qi Wang
Portfolio Manager, Global Macro Hedge Fund Strategies
Jamie Weinstein
Portfolio Manager, Head of Corporate Special Situations
Tiffany Wilding
North American Economist
Andrew T. Wittkop
Portfolio Manager, Treasuries, Agencies, Rates
Nelson Yuan
Chris Brightman
Chief Executive Officer and Chief Investment Officer, Research Affiliates
Ben S. Bernanke
Chair, Global Advisory Board
PIMCO
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
PIMCO’s Three-E Approach to ESG
Seizing Opportunities as Valuations Improve
Guarding Against Inflationary Risks
Economic Empowerment at the Nexus of Racial and Gender Equality
The Critical Role of Fixed Income
PIMCO’s Outlook for Bonds

Load more results Load {{cCtrl.fetchResults}} more results