"PIMCO Income boasts a world class team, process, and performance record. It carries a Morningstar Analyst Rating of Silver.
Dan Ivascyn and Alfred Murata have leveraged PIMCO’s bountiful--and growing--human and analytical resources, including a very large group of mortgage and real estate specialists. The evidence is long-term returns near the top of the multisector-bond Morningstar Category as of April 30, 2019.
The strategy’s nonagency residential mortgages have been a consistent contributor to its success. That sector has been shrinking at a rate of 10%-15% per year, while the fund itself has mostly grown at a furious clip. PIMCO still likes the sector for its promising return potential and modest volatility: The team has even managed to tactically raise and lower exposure to the sector, at times acquiring sizable chunks from sellers wanting or needing to unload them. After drifting down to 23% of the fund at the end of 2017--its lowest weighting since mid-2010--the team built it up to 41% a year later. (It was 36% on April 30, 2019.) The allocation comprises a mix of types, including legacy issues (9% in subprime and 10% in a mix of alt-A and prime loans) and 11% in reperforming loan securitizations. Absent a sea change in the market, though, the nonagency mortgage sector will continue to shrink. We would prefer PIMCO consider closing the strategy to new money should the managers have trouble keeping the exposure as large as they’d like, but the firm has no plans to consider that option.
We are confident the team can outperform and remain among the elite of its peers even without closing the strategy. The team slashed its agency mortgage-backed securities stake to 5.8% by August 2017 from 45% at the end of 2011 as its nonagency allocations grew, but Ivascyn and Murata built it back to 20% as of April 2019. They have rounded out the portfolio with emerging-markets debt (21%), a mix of high-yield (11.5%) and investment-grade corporates (9.5%), and non-U.S. developed markets ex-Japan (16%). The team continues to short Japan’s debt.