PIMCO Bullish On US Financial Bonds, Build America Bonds & MBS

 (February 2012) When you invest in PIMCO’s Total Return Fund (PIMCO’s largest and most popular fund), you are not necessarily getting the firm’s best ideas. The fund must limit its holdings to primarily investment grade, intermediate term bonds. Within these constraints, the PIMCO Total Return Fund does its best to achieve the highest return.  As the name implies, PIMCO’s Unconstrained Bond Fund is different.

PIMCO’s Unconstrained Bond Fund gives investors a clear look at PIMCO’s thinking.

What is PIMCO thinking? According, their most recent monthly Unconstrained Fund commentary:

  •  They are bullish on longer dated Build America Bonds. (Babs)
  •  They are long the US dollar against the Japanese Yen, Euro, and Australian Dollar.
  •  They are increasing holdings of Brazilian and Mexico debt.
  •  Selectively buying Mortgage Backed Securities.
  •  In terms of corporate debt, the like financial companies with strong balance sheet.
  •  While the have a significant holding of investment grade debt, they are hedging that partially by shorting High Yield Credit Default Swaps. If you don’t understand this one, don’t worry, its complicated.

The fund gives a detailed breakdown of its January performance numbers. The fund made money on their holdings of corporate bonds, municipal bonds and Mortgage Backed Securities. The fund lost money on shorting Junk Bond Credit Default Swaps, and a small amount on currency trades.

If you invest in this fund, you should expect more performance volatility then the Total Return Fund.

Term (using Feb 13, 2012 as the start)


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