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What’s really powering Pimco’s $54bn Income fund

What’s really powering Pimco’s $54bn Income fund

The Pimco GIS Income fund has emerged as firm favourite among fund buyers, with assets in the strategy growing significantly over 2017 alone.

The strategy as a whole now tips $92 billion in assets across its US and Ucits versions, as well as seeing fees increased to temper new investment.

But what is making this new giant fund tick?  Citywire Selector spoke to co-manager Alfred Murata over the summer to find out.

There is a Chinese proverb which states that all good things come in twos. Just think of all those positive pairings such as strawberries and cream, or Fred and Ginger, dancers of the silver screen.

The gargantuan Pimco GIS Income fund is managed by another complementary duo. Daniel Ivascyn and Alfred Murata have overseen the $48.9 billion* strategy since it was launched in 2012. (*$54.5 billion as at August 2017)

The recognisable Ivascyn famously became Pimco’s CIO in 2014 after Bill Gross explosive exit from the company.

Citywire AA-rated Murata has less of a public role than A-rated Ivascyn, but more than enough credentials as a fixed income fund manager.

Murata joined Pimco in 2001 from Nikko Financial Technologies, where he researched and implemented equity and interest rate derivatives, and has more than 17 years’ investment experience.

Murata is a named manager on 12 funds at Pimco with Ivascyn sitting as a co-manager on nine of them.

The pair are currently sixth in the Global Bonds sector with a return of 38.2% over five years. Their record on the Pimco GIS Income fund specifically is equally impressive.

Since launch they have returned 33.5% on the strategy versus 9.9% from the benchmark Bloomberg Barclays Global Aggregate index, see graph below.

Ivascyn and Murata have been working together for longer than the average marriage lasts in the US. Murata has nothing but praise for their working relationship and mutual respect is one of the reasons why it has lasted so long.

‘It has been a tremendous learning opportunity working with Dan over the years and I am very fortunate to have been able to have done that,’ he says.

‘Often we will discuss what the best course of action is and we will end up with an agreement. Dan is the primary portfolio manager on the strategy so ultimately it is going to be his call. Generally, we don’t disagree on the investment process. A big part of that is the fact that we have worked together for 15 years.’

A gigantic fund requires a large amount of brain power to run successfully. Murata emphasises that it is not just him and Ivascyn running the strategy alone. Other managers and analysts help to generate ideas and explore all the available options before Ivascyn and Murata implement them.

‘We have more than 200 portfolio managers and analysts around the world and we work on the portfolio together. The managers and analysts specialise in individual sectors of the global financial markets. If someone has a good idea then we can include it in the portfolio. It is not that Dan and I are sitting together in a room and coming up with our own ideas.

‘There is a sharing of ideas, both on a timely basis whenever these opportunities arise, but we also discuss longer-term strategies. This pooling of resources is particularly advantageous in terms of the investment process at Pimco,’ he says.

Exercising caution

Murata says it is important to be vigilant and guard against the downside in every economic scenario and the duo are always aware of potential risks.

‘We have become a bit more cautious and are trying to protect the portfolio against a big sell-off in risk assets, even though we think that is not a very likely occurrence.

‘This approach is very important in this low interest rate environment, where credit spreads are relatively tight and many investors are looking for ways to incrementally add additional yield to portfolios.

‘The markets don’t always go up. There is a saying that markets climb up the stairs and go down in the elevator. It is key to try and protect against the downside at the moment and many investors are not focusing on this,’ he says.

The mix of high risk and quality names has paid off and investors have been attracted to the fund for its ability to harness both approaches. In the first quarter of 2017, the fund pulled in the most inflows among cross-border fixed income funds at $9.9 billion.

Room to grow  

While equity funds would struggle to manage $30 billion in assets under management without capacity constraints being applied, Murata is confident that Pimco’s bond strategy will remain open to new investors who want to sign up.

‘We are taking advantage of the global opportunities set which is more than $100 trillion in size. The fund is still very small in these terms and we have the capacity to continue finding attractive returns,’ Murata says.

With such a large investment universe, Murata is spoiled for choice. However, he has learned to be selective when putting names into the fund and says some of the best ideas need a little longer to play out.

‘The most important lesson is to be patient with investment ideas. We spend a lot of time preparing analysis on a particular security, but it doesn’t necessarily mean that the market is going to revert to that particular valuation, sometimes it can take much longer.

‘You need to be cautious on altering positions because things can go wrong that you may not have anticipated,’ he says.

This is an extract from an article which originally appeared in the July/August issue of Citywire Selector. 

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