Philosophy
One of Pimco's strengths is their ability, and willingness, to think
longer-term than many of their peers and to implement strategies that can
add value over three-to-five year time frames. Their secular outlooks have
become front page headlines read by an increasing number of financial professionals
looking for insights into the thoughts of Bill Gross and his stable of
talented fund managers. But while many professionals find Pimco's viewpoint
valuable, they often find it hard to emulate Pimco's patience given the
short-term expectations of their own clients and/or shareholders.
A second, less publicized strength of Pimco’s is their innovation and
product development. They have been pioneers in the development of investment
strategies only later embraced by other investment management firms too
cautious to launch products without incubation periods that ensure viable
track records.
The initial share class of Pimco All Asset was launched in mid-2002 after
the firm’s research suggested that going forward, equity and fixed income
returns would likely not match their returns over the past two decades
and in fact, could be substantially below those returns. The primary reasons
for Pimco’s lower expectations are that interest rates are near historic
lows and equity valuations remain above their historical average.
Rob agrees with Pimco's assessment and believes stocks will generate
roughly 2% over inflation (CPI) in the coming years. All Asset aims to
produce a return of 5% over inflation (or 3% more than stocks). In addition,
he expects those returns to have a low correlation to the overall stock
market, with only about half of the volatility. Year-to-date through September
the fund had roughly a 48% correlation to the S&P 500 and a 49% correlation
to the Morgan Stanley EAFE international index. Rob aims to generate his
3% advantage from three areas: 1% from investing outside of conventional
stock and bond funds; another 1% by using Pimco managers who can add value;
and another 1% by making strategic shifts in the fund's asset allocation.
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