Today, many fixed income investors are seeking attractive income as they reduce interest rate exposure in an environment of rising interest rates. To meet these needs, PIMCO has created the GIS Low Duration Income Fund. It aims to maintain structurally low interest rate sensitivity and, as the newest addition to PIMCO’s Income suite, it has a similar approach as PIMCO’s GIS Income Fund. Portfolio Manager Alfred Murata and Fixed Income Strategists Paul Reisz and Anmol Sinha explain the fund’s unique characteristics and how it may fit into an investment portfolio.

Q: What is the PIMCO GIS Low Duration Income Fund?

A: The PIMCO GIS Low Duration Income Fund seeks to deliver an attractive and consistent level of income; its secondary objective is to generate modest capital appreciation over a normal cycle. Given its flexibility and broad opportunity set, it can capitalize on PIMCO’s best income ideas across global fixed income markets and reflects PIMCO’s macro themes and extensive bottom-up research. The portfolio construction aims to have diversified sources of returns, rather than rely primarily on a single sector to generate returns. In addition, the fund’s zero-to-three-year duration band provides the opportunity to be potentially more resilient in rising rate environments.

To maximize the probability of achieving these objectives, we have divided the portfolio into two larger components: one invested in higher-yielding assets, which we expect will perform well if economic growth is stronger than anticipated, and the other invested in higher-quality assets, which we expect will perform well if economic growth is weaker than anticipated. The resulting diversification enables the fund to seek net asset value (NAV) stability and longer-term capital appreciation while maintaining a low interest rate risk profile.

Overall, the fund’s flexible guidelines and PIMCO’s resources allow us to focus on generating consistent income with an attractive risk-adjusted-return profile.

Q: What are the similarities and differences between the PIMCO GIS Low Duration Income Fund and the PIMCO GIS Income Fund?

A: With respect to similarities, both strategies have dual objectives of income generation and capital preservation, and both strategies aim to achieve these objectives by implementing PIMCO’s best ideas around the globe.

With respect to differences, the PIMCO GIS Low Duration Income Fund will tend to have lower interest rate risk, lower credit risk, a lower distribution yield and the potential for less volatility than the PIMCO GIS Income Fund, given its lower duration band. While the PIMCO GIS Low Duration Income Fund employs the same investment philosophy and multi-sector approach as the PIMCO GIS Income Fund, it seeks opportunities primarily in shorter-maturity securities.

Q: How does the PIMCO GIS Low Duration Income Fund differ from, and complement, PIMCO’s other shorter-duration strategies?

A: The funds in our short-duration suite all aim to maintain low exposure to interest rate risk. Beyond that, the differences lie in their risk-return objectives (shown in the chart).

Typically, low duration strategies tend to follow a benchmark or sector-oriented approach. The PIMCO GIS Low Duration Income Fund is a benchmark agnostic strategy, in keeping with the investment philosophy of PIMCO’s broader income suite, and thus can employ greater flexibility to capture attractive income opportunities and help mitigate potential volatility.

The PIMCO GIS Low Duration Income Fund aims to provide attractive and consistent income, and can take on more credit risk than our short-term and low duration strategies in an effort to achieve this. The fund can be a good complement to core bond-oriented strategies, like the PIMCO GIS Low Average Duration Fund, as it adds a yield focus with a little more credit exposure while still maintaining structurally low interest rate risk.

Q: What role may the PIMCO GIS Low Duration Income Fund play in a portfolio?

A: The PIMCO GIS Low Duration Income Fund may be an attractive solution for investors with several different goals.

First, it could be a fit for investors who are looking for attractive yield but want to reduce interest rate risk, perhaps in anticipation of rising rates. Similarly, investors who are comfortable with a potentially lower return profile than the PIMCO GIS Income Fund – and therefore a slightly lower risk profile – could find the fund attractive.

The PIMCO GIS Low Duration Income Fund could also be a solution for those currently invested in traditional shorter-duration strategies but who seek additional yield. In a low-return world, the emphasis on attractive and competitive income with low interest rate risk can be particularly compelling.

In addition, the PIMCO GIS Low Duration Income Fund has the potential to be a diversifier to other offerings in the short duration space (including those that emphasize short duration credit) due to its global opportunity set, flexibility and focus on risk management.

Q: How are you positioning the PIMCO GIS Low Duration Income Fund for the current environment?

A: Given our outlook for continued solid global growth this year and the ongoing removal of accommodative monetary policy by global central banks, we are cautious on interest rate risk. As a result, we are keeping duration towards the lower end of the range, between one and two years.

Within all of our income strategies, we try to achieve two goals: generate an attractive, consistent income stream and maintain stability in the NAV of the portfolio. The portfolio construction and balance of assets across higher-yielding and higher-quality assets help meet the objectives. Currently, the more return-seeking component of the Low Duration Income portfolio – which we think will generate attractive income if economic growth is stronger than expected – includes U.S. non-agency mortgage-backed securities, which are bonds backed by residential mortgages that do not have any type of government guarantee. This reflects our view for a continued recovery in the U.S. housing market. For the more defensive component of the portfolio, we like high-quality sovereign exposure in countries like the U.S. and Australia to provide income as well as downside protection.

We also make tactical allocations as we see opportunities arise, and we believe flexibility is key in today’s market environment. Overall, we aim to diversify the PIMCO GIS Low Duration Income Fund across many fixed income sectors and geographies.

The Author

Alfred T. Murata

Portfolio Manager, Mortgage Credit

Paul W. Reisz

Fixed Income Strategist


Related Funds


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Past performance is not a guarantee or reliable indicator of future results and no guarantee is being made that similar returns will be achieved in the future.

PIMCO Funds: Global Investors Series plc is an umbrella type open-ended investment company with variable capital and is incorporated with limited liability under the laws of Ireland with registered number 276928. The information is not for use within any country or with respect to any person(s) where such use could constitute a violation of the applicable law. The information contained in this communication is intended to supplement information contained in the prospectus for this Fund and must be read in conjunction therewith. Investors should consider the investment objectives, risks, charges and expenses of these Funds carefully before investing. This and other information is contained in the Fund’s prospectus. Please read the prospectus carefully before you invest or send money. Past performance is not a guarantee or a reliable indicator of future results and no guarantee is being made that similar returns will be achieved in the future. Returns are net of fees and other expenses and include reinvestment of dividends. The performance data represents past performance and investment return and principal value will fluctuate so that the PIMCO GIS Funds shares, when redeemed, may be worth more or less than the original cost. Potential differences in performance figures are due to rounding. The Fund may invest in non-U.S. or non-Eurozone securities which involves potentially higher risks including non-U.S. or non-Euro currency fluctuations and political or economic uncertainty. For informational purposes only. Please note that not all Funds are registered for sale in every jurisdiction. Please contact PIMCO Europe Ltd for more information. For additional information and/or a copy of the Fund’s prospectus, please contact the Administrator: State Street Fund Services (Ireland) Limited and State Street Custodial Services (Ireland) Limited (collectively “State Street”), Telephone +353 1 7768000, Fax: +353 1 7768491. © 2018.

Benchmark - Unless otherwise stated in the prospectus or in the relevant key investor information document, the Fund referenced in this material is not managed against a particular benchmark or index, and any reference to a particular benchmark or index in this material is made solely for risk or performance comparison purposes. Additional information - This material may contain additional information, not explicit in the prospectus, on how the Fund or strategy is currently managed. Such information is current as at the date of the presentation and may be subject to change without notice. Investment Restrictions - In accordance with the UCITS regulations and subject to any investment restrictions outlined in the Fund’s prospectus, the Fund may invest over 35% of net assets in different transferable securities and money market instruments issued or guaranteed by any of the following: OECD Governments (provided the relevant issues are investment grade), Government of Singapore, European Investment Bank, European Bank for Reconstruction and Development, International Finance Corporation, International Monetary Fund, Euratom, The Asian Development Bank, European Central Bank, Council of Europe, Eurofima, African Development Bank, International Bank for Reconstruction and Development (The World Bank), The Inter American Development Bank, European Union, Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), Government National Mortgage Association (Ginnie Mae), Student Loan Marketing Association (Sallie Mae), Federal Home Loan Bank, Federal Farm Credit Bank, Tennessee Valley Authority, Straight-A Funding LLC.

RISK: 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 the current low interest rate environment increases this risk. Current 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. Commodities contain heightened risk, including market, political, regulatory and natural conditions, and may not be suitable for all investors. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Derivatives may involve certain costs and risks, such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Sovereign securities are generally backed by the issuing government. Obligations of U.S. government agencies and authorities are supported by varying degrees, but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such securities are not guaranteed and will fluctuate in value. High yield, lower-rated securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government-agency or private guarantor, there is no assurance that the guarantor will meet its obligations. Income from municipal bonds may be subject to state and local taxes and at times the alternative minimum tax. Swaps are a type of derivative; swaps are increasingly subject to central clearing and exchange-trading. Swaps that are not centrally cleared and exchange-traded may be less liquid than exchange-traded instruments. Inflation-linked bonds (ILBs) issued by a government are fixed income securities whose principal value is periodically adjusted according to the rate of inflation; ILBs decline in value when real interest rates rise. Treasury Inflation-Protected Securities (TIPS) are ILBs issued by the U.S. government. Certain U.S. government securities are backed by the full faith of the government. Obligations of U.S. government agencies and authorities are supported by varying degrees but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such securities are not guaranteed and will fluctuate in value.

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