The Investment Grade Credit Strategy is designed for investors who desire a high credit quality Canadian fixed income alternative that is well positioned to benefit from changing domestic and global economic conditions. This strategy allows investors to make the strategic decision to invest in investment grade credit while placing the tactical sector, industry, geographic and issuer decisions with PIMCO, thereby optimizing exposure amid changing economic and market environments. The strategy aims to deliver the following potential benefits to investors:
PIMCO is a leader in global credit markets, having used investment grade corporate bonds as a key component of our investment strategy for core fixed income portfolios since 1971. We have an experienced team of investment grade credit portfolio managers and industry-focused credit analysts.
The firm’s investment process utilizes both “top-down” and “bottom-up” strategies with the goal of combining perspectives from both the portfolio and security levels in an effort to consistently add value over time within acceptable levels of portfolio risk.
Top-down strategies focus on duration, yield curve positioning, volatility and sector rotation. These strategies are driven by our secular outlook of the forces likely to influence the economy and financial markets over the next three to five years, as well as our cyclical views over a six- to 12-month time horizon.
Bottom-up strategies drive our security selection process and facilitate the identification and analysis of undervalued securities. Here, we employ advanced proprietary analytics and expertise in all major fixed income sectors.
PIMCO’s experienced team of credit analysts, located around the globe, is responsible for evaluating corporate credit. We place a great deal of importance on independent analysis when evaluating corporate credits. We never rely on rating agencies alone: Our staff of seasoned credit analysts rates every credit that we hold. Our research is focused on issues with improving credit profiles and prospects for rating upgrades and, therefore, greater capital appreciation potential. A prerequisite to our evaluating an issuer is access to management. We concentrate on issuers with strong underlying businesses and competitive positions.
Our credit research framework focuses on business and financial risk at the issuer level, as well as security-specific risk with the structure of the issue. With respect to business risk, we evaluate the overall industry dynamics, the company’s competitive position within the industry, the quality of the business plan and the quality of management and their ability to execute on the business plan. In terms of financial risk, we evaluate a variety of financial ratios measuring leverage, cash flow, interest coverage and liquidity.Default and spread widening risk are the dominant potential risks in purchasing corporate debt securities. Our focus on higher quality corporates, combined with our comprehensive evaluation of credits, both at purchase and on an ongoing basis, reduces the risk of downgrade or default.
There are four common criteria that each analyst will focus on: 1) business model, 2) cash flow, 3) balance sheet and 4) security structure. The specific metrics and financial ratios will vary based on the industry and as a result the format of reporting the analysis will also vary. In addition, emphasis on the four factors listed above will also depend on the industry; however, the general criteria applied to the analysis is consistent across our global credit research team.
PIMCO’s robust, top-down macroeconomic analysis of the world’s major economies sets the tone for the structure of our credit portfolios. The assessment of the direction of global economic growth and interest rates provides important insight in choosing the optimal portfolio structure and sector allocation within this strategy.
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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