Investment Strategies

Guiding Investors Through Decades of Credit Cycles

Mark Kiesel, CIO Global Credit, discusses the factors behind PIMCO’s approach to credit investing, and how the firm is well-positioned to seek to deliver alpha for our clients over the long term.

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Mark R. Kiesel, CIO Global Credit:

While I’ve had many roles in my career at PIMCO. Our approach to markets has not changed, and this has translated to two decades, now,

Shots of PIMCO employees in a meeting.

in delivering in our credit strategies.

Scale matters in the credit business. As one of the largest managers of credit assets in the world, we have significant global resources, including over 60 credit analysts, to analyze companies around the world from a fundamental bottom-up perspective, over 40 credit portfolio managers who identify bond by bond and bottom-up security selection opportunities, dedicated quantitative and analytics teams who analyze relative value in the capital structure, and dedicated independent risk management to help PIMCO assess risk-reward across a variety of markets all over the world

Shots of PIMCO employees working.

In our almost 50 years at PIMCO, we’ve been through numerous credit cycles, and we’ve seen some bad situations. Credit can be very humbling at times, but one of the things about PIMCO is we have very disciplined risk management.

Article “For Sale” on screen.

We wrote a paper titled “For Sale” in May of 2006, where we warned U.S. housing prices could fall, potentially a lot, and that it could lead to a recession. A few of our clients wanted to understand why we were running such low risk in our credit strategies.

Series of aerial shots of neighborhoods.

In early 2007, we became convinced U.S. housing prices would fall a lot more than the market was expecting at the time. The underlying fundamentals were starting to deteriorate.

While our approach lagged for a few quarters, finally, in 2008, when fundamentals turned down and this hit hard, we were able to capitalize on numerous investment opportunities for our clients.

Shots from a PIMCO Cyclical Forum.

This period highlighted the importance having a long-term view focusing on bottom-up fundamentals and, importantly, having an independent view, particularly one which was different from the market.

Shots of Mark in meetings and around the office. These to an airplane taking off and shots of a construction site.

Our relationships with companies, which have been built up over decades, help us in assessing the evolving landscape across different sectors and industries, especially during challenging periods and during volatile markets.

Our team of analysts are industry experts who look at credits, high to low rated companies. We cover the entire spectrum of credits across the industry, and we independently rate credits in our portfolios.

Shots of Mark at a forum.

Chart: A chart illustrates PIMCO ratings (A-, B+, BBB-) versus agency ratings (A-, B+, BB) for three hypothetical companies.

Historically, this has led to about a third of our ratings being different from the rating agencies.

Credit markets may face challenges in the decades ahead. There may be segments of the market that suffer permanent capital impairment.

Shots of PIMCO employees working.

But just like in prior credit cycles, we believe there eventually will be repair and recovery.

The path to getting there may not be even, but we believe that by being patient and disciplined, we can continue to try to deliver alpha for our clients over the long term.

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Past performance is not a guarantee or a reliable indicator of future results.

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. 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.

The credit quality of a particular security or group of securities does not ensure the stability or safety of an overall portfolio. The quality ratings of individual issues/issuers are provided to indicate the credit-worthiness of such issues/issuer and generally range from AAA, Aaa, or AAA (highest) to D, C, or D (lowest) for S&P, Moody’s, and Fitch respectively.

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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