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PIMCO Total Return is back to the Top

At the end of January, Morningstar Inc, raised its star rating on PIMCO Total Return’s institutional share class to five stars from four stars, highest possible mark - Over 3 months ended Jan 31 2015, the fund returned 3.16%, beating its Barclays US Aggregate Bond benchmark by 24 basis points and 95% of its competitors.

  What was right with the fund’s strategy? Scott A. Mather – one of the three man  who runs the world’s largest bond fund said:

  1. The fund is benefiting in part from correctly estimating the effects of divergent central-bank policy around the world as the US winds down its stimulus and the Eurozone embarks on its quantitative easing.
  2. The fund is positioning for an interest rate rise in the US in the summer, ahead of many other institutional investors who appear to be positioned for such a rise at the end of the year.
  3. The fund’s positioning with respect to macroeconomic numbers accounts for about 60% of the fund’s return.

Mr Mather believe that “buy-and-hold” strategy would not do well in fixed income because the risk of changing premiums between the yields on different types of bonds – known as “spreads” – need to be effectively managed.

Mark R. Kiesel, Mihir P. Worah and  Scott A. Mather are the three man who runs PIMCO Total Return fund.  They would continue to debate until they arrive at consensus.  Because “That’s the best thing to do, but if you don’t arrive at a consensus you probably don’t take a position.”

Reference

InvestmentNews, Trevor Hunnicutt, 2015-02-09, “After Bill Gross, PIMCO Total Return Performance is Back at the Top”