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By Eric Jacobson | 01-15-2014 12:00 PM

Avoiding Pitfalls While Seeking Income

The managers of PIMCO Income Fund, Morningstar's 2013 Fixed-Income Fund Manager of the Year, use a two-bucket approach, holding both higher-yielding and higher-quality securities for various economic environments.

Eric Jacobson: Hi, I'm Eric Jacobson with Morningstar.

We're here today with the fund managers of PIMCO Income, who are being selected as our Fund Manager of the Year for the Fixed-Income Award, the bond fund Award. We've got Dan Ivascyn and Alfred Murata from PIMCO, and they've been kind enough to join us in the studio here today.

Thank you both so much for being with us.

Daniel Ivascyn: Thank you, Eric.

Alfred Murata: Thank you very much.

Jacobson: Dan, I'll start with you. People very often purchase bond funds for income, but it's become a lot more common over the last several years--no small feat of Bill Gross and PIMCO Total Return being a leader in the field--for managers to focus on total return when managing bond funds. This fund is a little bit different in that it still has a very deliberate focus on income and even has a set dividend that you guys manage to.

Can you talk a little bit about the things that you do to differentiate the fund given the income focus that you have?

Ivascyn: That's very true. Unlike other PIMCO portfolios, a consistent dividend income is the fund's primary objective. That tends to have us focus on some of the higher-yielding opportunities within the fixed-income market. However, like all PIMCO portfolios, the critical secondary or additional objective is total return. We never want to sacrifice total return for the sake of generating income. And then, finally, we want to put together a portfolio that's consistent with PIMCO's macro themes. That's what really ties things together.

But in terms of the differentiating feature, it really is that we tend to focus on current yield a bit more than other portfolios. It tends to lead us into, again, some of the higher-yielding credit sectors over the course of time--or at times, slightly longer maturities.

Jacobson: Alfred, I'll ask this to you: How do you manage to avoid some of the pitfalls that have historically trapped some of the more income-focused funds in the mutual fund universe?

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