What is the PIMCO Canadian Short Term Bond Strategy?
The PIMCO Canadian Short Term Bond Strategy offers diversification, and the possibility of higher investment returns relative to the FTSE TMX Canada Short Term Bond Index. The Strategy seeks to invest in a diversified portfolio of Canadian dollar fixed-income instruments of varying maturities. It aims to preserve principal and generate a high level of current income.
Short-term investments have formed the foundation of the PIMCO total return performance record. The firm began managing dedicated short-term accounts in 1986. The PIMCO Canadian Short Term Bond Strategy offers the following benefits:
The Strategy may benefit investors seeking to achieve the following objectives:
Founded on the principle of diversification, PIMCO believes no single strategy should dominate returns. The firm’s investment process utilizes both “top-down” and “bottom-up” approaches to selecting investments with the goal of combining perspectives from an economic, big-picture standpoint (top-down) and security level (bottom-up) in an effort to consistently add value over time within acceptable levels of portfolio risk.
Sources of Added Value
By combining a longer-term investment horizon with our expertise in managing fixed income portfolios, the Strategy is not limited to investing only in very short-term assets such as Treasury bills or other money market instruments. As a result, we are able to expand our opportunity set to include a variety of high quality securities that may provide attractive yields and the benefit of diversification.
An expanded investment opportunity set, and more specifically the following four risk premiums, add up to a wide variety of opportunities to add value given our broad fixed-income market expertise and the longer term holding periods of our investors. The Strategy derives excess return opportunities from the following sources:
Term Premium Based on the upward slope in the shape of the yield curve, PIMCO believes that the most efficient duration management strategy involves a modest extension of duration beyond the average maturity of money market strategies in an effort to capture the term premium offered by the positively sloped yield curve under normal market conditions.
Transactional Liquidity Premium A portion of the fixed income portfolio can be invested in higher-yielding, slightly less liquid securities such as collateralized mortgage obligations, corporate notes and other securities. These issues typically earn a higher yield due to their lower trading liquidity.
Credit Premium Obtained by investing a portion of the portfolio in securities rated below AAA in an attempt to capture both yield and diversification benefits. While we primarily focus on the investment grade segment of the corporate bond market, we do invest a small portion of the portfolio in below-investment-grade securities.
Volatility Premium Investors typically overpay for price stability as demonstrated by the fact that implied short-term market volatility is generally higher than actual realized volatility. Therefore, by effectively selling price volatility PIMCO may be able to exploit this market inefficiency and capture the yield premium for short-term portfolios. One of the ways in which we attempt to capture the volatility premium is by purchasing mortgage-backed securities.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. PIMCO Canada Corp., 199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2, 416-368-3350. ©2017, PIMCO.
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