All investors have been extremely challenged to select plausible investments for the fixed income portion of their investment portfolio in the current environment. With so much of the world sovereign bond markets trading at negative yields, it is certainly a perilous time to be a fixed income investor. Alternative fixed income and unconstrained funds are all the rage.
This brief article introduces PIMCO’s venerable offering which is a global multi-sector fixed income fund. PIMCMEI is an open ended fund, incorporated in Ireland. The fund seeks and delivers high current income, 4.06% monthly at present. The fund duration is a modest 3.1 years.
PIMCMEI is up 4.81% year to date in 2016, compared to 7.43% for the S&P. This return comes with a lot less drama of course, as anyone long equities through February 2016 can attest.
The MER for the retail fund is high at 1.45%. PIMIX is the institutional version with a more modest MER of 0.45% but for $1,000,000 plus invested. The standard deviation of PIMIX is 2.81% and the Sharpe Ratio is a remarkable 2.01. The Sharpe ratio calc first subtracts the risk-free rate from portfolio return then divides the result by the standard deviation of the portfolio return. As a point of reference the S&P 3 year std. dev. is 11.23% and the 3 year Sharpe ratio is 1.02.
Pimco’s Daniel Ivascyn, CIO is the PM for the fund (est. 12/2012), assisted by Alfred Murata. Ivascyn, not yet 50, took over from aged Bill Gross as the “Bond King” at Pimco. The retail targeted PIMCMEI manages > $15bln and PIMIX has > $60bln in AUM.
I’m also long some of Gunlach’s Doubleline funds, but nowhere near the scale.
Wealth managers like the consistent Pimco Income Fund returns and offer up to 4x leverage on investment in the fund at Libor +50/+75 depending on the size of the relationship one has.
Clearly this fund gets many things right. The brain trust at Pimco is substantial and all PM’s benefit from the rigorous Secular forum, run annually, which looks out 3-5 years. The sister Cyclical forum takes a 12-18 month view and between them have allowed Pimco to get to the carrot first, in size.
For non-US investors, the PIMCMEI fund attracts no withholding tax and is not subject to US estate taxes given the Ireland domicile.
The fund fact sheet can give you a good window on where Pimco currently sees value. Weighting in high yield are low in comp to emerging markets. The highest weighting is in US mortgage backed securities at present.
Don’t write off fixed income just yet, you just have to dig. JCG
Disclosure: Long PIMCMEI levered 1:1. Leverage to be reduced as 3 month Libor setting reaches 1% (mid 2017?).
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