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PIMCO’s Approach to Liquid Real Estate Exposure

Real estate investment trust (REIT) indexes offer liquid exposure to publicly traded real estate securities and serve as proxies for direct real estate investments. PIMCO’s real estate strategies are designed to deliver the returns of the REIT asset class plus additional return potential from active management.

In seeking to track and outperform the return of a REIT index, PIMCO looks to gain exposure to REITs through a combination of total return swaps linked to a REIT index as well as through actively selected single name REIT holdings. PIMCO’s portfolio management team leverages firmwide resources, including specialists within our credit research team, to identify pockets of value within the REIT market with the goal of outperforming the REIT index.

To the extent that a portion of the REIT exposure is achieved through total return swaps, PIMCO implements an actively managed fixed income collateral portfolio to back this exposure. Depending on the strategy, the collateral portfolio can be managed in a variety of ways. For example, the use of Treasury Inflation-Protected Securities (TIPS) to back the total return swaps is at the heart of PIMCO’s Double Real® approach, which offers exposure to two asset classes (real estate and TIPS) that historically have had a positive correlation to inflation. We also can manage the collateral in an enhanced cash style or as a custom strategy based on client preferences.

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Disclosures

Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, and inflation risk. The value of real estate and portfolios that invest in real estate may fluctuate due to: losses from casualty or condemnation, changes in local and general economic conditions, supply and demand, interest rates, property tax rates, regulatory limitations on rents, zoning laws, and operating expenses. REITs are subject to risk, such as poor performance by the manager, adverse changes to tax laws or failure to qualify for tax-free pass-through of income. Inflation-linked bonds (ILBs) issued by a government are fixed-income securities whose principal value is periodically adjusted according to the rate of inflation; ILBs decline in value when real interest rates rise. Commodities contain heightened risk including market, political, regulatory, and natural conditions, and may not be suitable for all investors. PIMCO strategies utilize derivatives which may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. Swaps are a type of derivative; while some swaps trade through a clearinghouse there is generally no central exchange or market for swap transactions and therefore they tend to be less liquid than exchange-traded instruments. There is no guarantee that this investment strategy will work under all market conditions and each investor should evaluate their ability to invest for a long-term especially during periods of downturn in the market. Diversification does not ensure against loss.

Double Real® refers to a strategy that provides exposure to two asset classes (real estate and TIPS) that have historically had a positive correlation to inflation.

The Consumer Price Index (CPI) is an unmanaged index representing the rate of inflation of the U.S. consumer prices as determined by the US Department of Labor Statistics. There can be no guarantee that the CPI or other indexes will reflect the exact level of inflation at any given time. Dow Jones U.S. Select Real Estate Investment Trust (REIT) Total Return Index is a subset of the Dow Jones Americas Select Real Estate Securities Index (RESI) and includes only REITs and REIT-like securities. The objective of the index is to measure the performance of publicly traded real estate securities. The indexes are designed to serve as proxies for direct real estate investment, in part by excluding companies whose performance may be driven by factors other than the value of real estate. LIBOR (London Interbank Offered Rate) is the rate banks charge each other for short-term Eurodollar loans. The Standard & Poor’s 500 Stock Price Index is an unmanaged market index generally considered representative of the stock market as a whole. The index focuses on the Large-Cap segment of the U.S. equities market. It is not possible to invest directly in an unmanaged index.

​ This material contains the current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.