A quick overview of fund giants Canadian offerings
With over $1.8 trillion in assets under management, Newport Beach based PIMCO is one of the world’s most respected money managers. Founded in 1971 by Bill Gross, Bill Podlich and Jim Muzzy, PIMCO was the first to bring the concept of an actively managed bond portfolio to the mainstream. Over the years, Bill Gross has become one of the most influential individuals when it comes to the topic of fixed income.
In managing portfolios, the firm employs an active strategy that incorporates both top down and bottom up strategies. They use a big picture overview to help them set the funds’ duration, yield curve positioning and sector exposure. Once this is set, they use their proprietary analytical approach to find undervalued securities that will allow the funds to provide strong risk adjusted returns.
Largely known as a fixed income shop, PIMCO has been expanding their lineup to include a number of equity focused offerings. A few years back, they landed Charles Lahr and Anne Gudefin, who were very successful in managing the Mutual Discovery Fund before their arrival at PIMCO.
Active in the institutional space in Canada since 2004, PIMCO launched eight mutual funds early last year that were targeted at individual investors. Playing to their strengths, six are fixed income focused, with the other funds being a global equity and a balanced fund.
While it is much too early to make a definitive judgment on the funds, early indications look promising. Except for the PIMCO Canadian Long Term Bond and the PIMCO Global Advantage Strategy Bond, the funds have finished well in the upper half of the category.
Some quick highlights of their fund offerings include:
PIMCO Canadian Short Term Bond (PMO 001) – As the name suggests, this is an actively managed portfolio of short and intermediate term Canadian bonds that looks to outpace the DEX Short Term Bond Index. As of July 31, it has done just that, posting a one year return of 3.2%, handily beating the index. The fund is conservatively positioned, holding 73% in government bonds and 22% cash. The cost is low, with an MER of 1.20%.
PIMCO Canadian Total Return Bond Fund (PMO 002) – This is a core bond fund that invests in an actively managed diversified portfolio of high quality Canadian bonds. Performance has been strong, finishing firmly in the top quartile. The focus is on high quality bonds, with more than 80% invested in government bonds. The duration is in line with the DEX Bond Universe, which means that when interest rates increase the fund will be affected similarly to the index. The management fee is 1.20% which is higher than some of our favourites including PH&N Total Return Bond and Beutel Goodman Income.
PIMCO Canadian Long Term Bond Fund PMO 003) – This is one of only a handful of funds in Canada that are focused exclusively on bonds that have a maturity of more than ten years. The longer term increases the interest rate sensitivity, which makes it more volatile than a more traditional bond fund. While this will help in a flat or falling rate environment, it will hurt when rates move higher. While we don’t expect rates to move higher anytime soon, we would not suggest an allocation to long term bonds at the moment.
PIMCO Canadian Real Return Bond Fund (PMO 004) – The managers are active in their approach to the fund and have the flexibility to invest in other types of bonds including high yield bonds, emerging market bonds and foreign bonds. Like long bonds, we would be reluctant to suggest a meaningful allocation to real return bonds given the current interest rate and inflation environment.
PIMCO Monthly Income Fund (PMO 005) –Early indications put this global bond offering at or near the top of the class for the PIMCO offerings. It invests in an actively managed portfolio of non-Canadian fixed-income instruments of varying maturities that seeks to maximize current income while maintaining a relatively low risk profile. To date, it has done that, providing very strong returns with very low volatility. In addition, it pays a regular monthly distribution that is around $0.041 to $0.046 per unit, which works out to an annualized yield of approximately 3.8%. While volatility has been low, it could head higher over time. It has a fairly flexible investment mandate and can invest up to 50% of the fund into high yield bonds, which can be risky. It also can invest up to 10% of the fund in gold and silver, which is not something you would expect from a bond holding.
PIMCO Global Advantage Strategy Bond Fund (PMO 006) – Another global bond offering, this fund has not delivered anywhere near the stellar results of the Monthly Income Fund. Since its launch, it has lagged most of the global bond category. There are a number of better offerings available including a couple of our favourites RBC Global Corporate Bond and Manulife Strategic Income.
PIMCO Global Balanced Fund (PMO 007) – Set up as a “fund of funds” solution, this global balanced offering invests in units of the PIMCO Global Advantage Strategy Bond Fund and the PIMCO Pathfinder Fund. The asset mix will typically be set at between 40% and 60% equity. As of July 31, the mix was roughly 50/50. Given the underperformance of the Global Advantage Bond Fund, this is one that investors may want to avoid in the near term.
PIMCO EqS Pathfinder Fund (PMO 008) – Managed by the team of Anne Gudefin and Charles Lahr, this bottom up, go anywhere equity fund uses a deep value approach in its stock selection. The fund may also use a couple of other nontraditional strategies to add value including investing in merger arbitrage and distressed debt. The portfolio is fairly diversified, holding approximately 90 names. Volatility has been comparable to the broader market. The biggest drawback to this fund is that the costs are higher than the category average.
BEST BETS – PIMCO Monthly Income, PIMCO Canadian Short Term Bond, PIMCO EqS Pathfinder Fund