Viewpoints

Taking a Patient Approach Should Lead to Opportunity

Group CIO Dan Ivascyn explains why there will be significant opportunities over the coming months for family capital clients that can afford to be patient and weather volatility.

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Photograph of Daniel J. Ivascyn, Group Chief Investment Officer

Dan Ivascyn: For many of you that have longer term capital, that can be patient and weather volatility, it's a great environment and it's going to be a great environment to put capital to work. We are seeing value, particularly in the new issue markets of the credit related sectors, but some of the easy money has already been made, particularly if you're looking at legacy instruments or more of a beta focus across these areas of the market. The private markets have yet to come to grip with the shock that we have been facing. When you look at quarter-end valuations, when you look at other levered credit vehicles out there in the marketplace, the marks do not yet reflect the fundamental economic deterioration. We just begun the default cycle, the re-pricing cycle, in that area of the market. So, we think it's one of the highest conviction opportunities out there, but it's critically important that investors are patient, because the size of the problem is going to create opportunities for many months, and even many years to come.  You can take advantage of what's going to be forced selling, not necessarily disorderly selling, but forced selling, or motivated selling, from a lot of market participants that are regulated, based on rating. Even at PIMCO, a lot of our client mandates within their guidelines, have various rules around ratings requirements. So, again, I think this is a tremendous opportunity and why we're seeing so much interest from our clients for credit-related strategies that aren't just looking to dive in and take advantage of the dislocation we've witnessed over the course of the last several months. But more patient capital, that could be deployed on an opportunistic basis, to be the liquidity provider for what's ultimately going to be an elongated cycle with, unfortunately for the markets, more broadly, a decent amount of forced selling. Don't make it more complicated than it needs to be. Don't take too much volatility if you don't need to. And I think when you look at the opportunity set broadly across the credit segments of the fixed-income universe, especially if you can get into the slightly less liquid segments of the market. We think you can earn equity-like returns or even exceed equity-like returns. You are going to have forced sellers that can't deal with the complexity, that can't deal with the rating but in exchange for taking on that type of risk, you have a profile with considerable upside but potential meaningful downside protection if we happen to be wrong. And after the more recent rally we've seen in developed market equities, particularly in the United States in the growth-related sectors, we do think that some of these opportunities stack up extremely well versus their public equity alternatives.

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Disclosure


IMPORTANT NOTICE

Please note that the following contains the opinions of the manager as of the date noted, and may not have been updated to reflect real time market developments. All opinions are subject to change without notice.

All investments contain risk and may lose value.  Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Equities may decline in value due to both real and perceived general market, economic and industry conditions. 

Private credit involves an investment in non-publically traded securities which may be subject to illiquidity risk.  Portfolios that invest in private credit may be leveraged and may engage in speculative investment practices that increase the risk of investment loss.

The credit quality of a particular security or group of securities does not ensure the stability or safety of an overall portfolio. The quality ratings of individual issues/issuers are provided to indicate the credit-worthiness of such issues/issuer and generally range from AAA, Aaa, or AAA (highest) to D, C, or D (lowest) for S&P, Moody’s, and Fitch respectively.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

Forecasts, estimates and certain information contained herein are based on proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fees, and/or other costs. In addition, references to future results should not be construed as an estimate or promise of results that a client portfolio may achieve.

This material contains the 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. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517) and PIMCO Europe Ltd - Italy (Company No. 07533910969) are authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The Italy branch is additionally regulated by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act. PIMCO Europe Ltd services are available only to professional clients as defined in the Financial Conduct Authority’s Handbook and are not available to individual investors, who should not rely on this communication. | PIMCO Deutschland GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Deutschland GmbH Italian Branch (Company No. 10005170963) and PIMCO Deutschland GmbH Spanish Branch (N.I.F. W2765338E) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 32 of the German Banking Act (KWG). The Italian Branch and Spanish Branch are additionally supervised by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act and the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and  203  to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. The services provided by PIMCO Deutschland GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2), Brandschenkestrasse 41, 8002 Zurich, Switzerland, Tel: + 41 44 512 49 10. The services provided by PIMCO (Schweiz) GmbH are not available to individual investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). 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CMR2020-0623-1225192

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