09.02.2011
By Terry Flanagan

PIMCO’s Absolute Return Strategy

A less benchmark confined trip down the credit scale is what investors need, said the world’s largest bond fund manager.

This past August marks the launch of PIMCO’s (Pacific Investment Management Company) Credit Absolute Return Strategy. The flexible credit strategy aims to take advantage of a wide range of bonds, searching for positive returns, regardless of the environment.

“The strategy offers long and short exposure across multiple global credit sectors in order to target absolute returns,” said Mark Kiesel, managing director and generalist portfolio manager for PIMCO. Kiesel will be the lead manager on the new fund. “It’s designed for investors who want exposure to credit with greater flexibility than a traditional benchmark-constrained approach.”

The “go-anywhere” type of investment model in the bond world might prove attractive at a time when not all bonds are created equal.

“Amid current macro trends, we see heightened opportunities for investors to potentially benefit from a global, flexible approach to credit across the quality spectrum,” Kiesel said, citing the dichotomy between the poor health of sovereign debt and the sound health of corporate debt, boosted by healthy company fundamentals.

“Given valuations right now, we prefer to be long U.S. bank corporate bonds, select emerging market corporate, rising stars credits and first lien secured loans,” Kiesel told Markets Media. “With respect to shorts, the majority of the positions consist of select consumer product companies and retailers.”

Since the strategy is focused on positive returns irrespective of the market environment, it may appeal to many types of investors over the long term—institutional investors such as pensions, endowments and foundations.

Despite its long-term investment horizon, the new fund can also “seek out shorter-term tactical opportunities, so not only can the fund take greater exposure to credit when spreads are attractive, it can reduce overall exposure when necessary and focus on relative value.”

The new Credit Absolute Return Strategy also knows no boundaries when it comes to geography, not just bond type.

“We see potential for significant volatility in financial markets, particularly with what is occurring in Europe and the U.S, and our veteran global credit team is well positioned to potentially capitalize when markets dislocate,” Kiesel said. “This strategy gives us exceptionally wide discretion to identify, and take advantage of, relative value opportunities that we may find in bonds and other instruments denominated in various currencies.”

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