PIMCO: California dreaming

Having a global reach has been one of the contributing factors to PIMCO Australia’s consistent top performance, and first place finish in the Money Management Fund Manager of the Year award for international fixed interest.

The investment team is based at Newport Beach, California, so being in the same time zone for a considerable portion of the fund’s trades is also a considerable advantage.

Head of portfolio management Kumar Palghat adds that another benefit of being a global fund manager is the scale of funds under management. PIMCO manages in excess of US$400 billion, which gives it investment clout on the global stage.

But size alone is not the key to consistent performance.

“Our five-year track record has seen us being between 125 to 130 basis points above the index,” Palghat says.

The global fixed interest fund, which is available to retail investors through Equity Trustees, invests in the US, European and Japanese markets. The US and Europe each have a 40 per cent weighting, while Japan accounts for 20 per cent of the fund.

Palghat says there is no currency risk as the fund is hedged in US dollars.

PIMCO’s management style is top-down with a spread view on the particular fixed interest sectors.

“We also look at economic volatility in relation to each of the markets,” he says.

“We are also looking for value in the market. Most of the time the funds are invested with very small cash holdings.”

The fund uses shorting to be underweight in the index. Long investing is used for total return focus, Palghat says.

Assirt analyst Greg Barr says PIMCO has a large range of international fixed interest products available in Australia and these were taken in consideration in the judging.

“It is a diverse range and that makes it hard for domestic managers to compete against such an international manager,” he says.

“Our view is the manager must be good at adding value using a lot of different investments and that does create advantages over domestic managers.”

Barr says the international managers are more adaptive to global market conditions and can add value using different resources.

“Scale gets the manager access to various resources and it creates an unlevel playing field for domestic managers,” he says.

“Domestic managers can still perform well, but it is harder.”

This is the first time the international fixed interest category has been included in the awards, recognition of the growing interest in the sector by both managers and advisers.

However, one domestic international fixed interest manager has been named as a finalist in this award category.

According to Tyndall executive bond manager Ross Gustafson, achieving consistent performance is due to low volatility in its international fixed interest fund.

“We have achieved the lowest levels of volatility, which has delivered us the highest returns [in the sector],” he says.

“That is the key to our consistent performance.”

Gustafson says the constant application of the investment process is another key to achieving constant performance in the fund.

“A lot of people only pay lip service to process,” he says.

“We have been refining our process, which is based on finding fair value and we make that assessment globally and locally.”

Gustafson says it is important to keep to the process, even if the market is in the wrong place and is too expensive. It is also important to keep to the risk profile of the fund, he says.

“There is always exposure to risk, but we try to smooth out the issues and search for value,” Gustafson says.

“Our aim is to get consistent performance through patience.”

— John Wilkinson