PIMCO Global Bond

This week Money asks Morningstar where to invest and its pick is PIMCO Global Bond.

Objective

PIMCO Global Bond aims to achieve a maximum total return by investing in global fixed interest securities, and seeks to preserve capital through prudent investment management. The fund invests predominantly in government, corporate, mortgage, and other global fixed interest securities. The fund invests in investment-grade securities, but may also hold non-investment-grade and emerging market securities.

Independent commentary

PIMCO Global Bond is an excellent offering for diversified global fixed-income exposure. The consistent time-tested process consists of a benchmark-aware approach that invests mainly in investment-grade government and corporate bonds in developed markets. The strategy can delve off-benchmark in high-yield, inflation-linked, securitised, and emerging-markets debt, but matching past absolute returns will be challenging given that interest rates are near historic lows.

Consistently getting macroeconomic and secular views right is no easy task, as mixed results from duration positioning in 2011-15 attest. Still, the superior long-term record is largely attributable to PIMCO's prescient macro views, and we believe the firm's vigorous internal debate will continue to guide sensible decisions.

Team changes have affected this strategy. Sachin Gupta is the Australian vehicle's lead manager from the start of 2016, taking over from CIO of global fixed-income Andrew Balls, with Lorenzo Pagani and Tomoya Masanao also influential. PIMCO's attempt to make more team-oriented decisions may lessen the impact of any individual, though the effectiveness of this global unit remains to be seen. Still, each team member is experienced in their own right, and Gupta's ascent is unlikely to have a major impact on how the portfolio is managed. Despite the high-profile departures of Bill Gross and Mohamed El-Erian in 2014, PIMCO still has a well-resourced global fixed-interest team, and access to policymakers may also provide an edge.

Sizable outflows have hampered profitability at the firm level. While we'd be wary of cost-driven staff cuts, PIMCO hasn't enacted such measures to date and flows have mostly stabilised. The Australian business has also been largely unscathed, and Global Bond has continued to tick along reasonably untroubled throughout. As a result, our strong conviction in the strategy remains intact, owing to the experienced team and redoubtable process.

Key fund data

Management fee: 0.49%pa Morningstar Analyst Rating: Silver Minimum initial investment: $A20,000 Role in portfolio: Core

Source: Morningstar.com.au

Get stories like this in our newsletters.