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Fund Spy: Morningstar Medalist Edition

PIMCO Income Remains a Bright Spot for the Beleaguered Firm

These may be PIMCO's most difficult hours, but PIMCO Income has only thrived.

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Former PIMCO chief investment officer Bill Gross' exit on Sept. 26, 2014, was a blow to the firm, and the firm has suffered big outflows. But  PIMCO Income's (PIMIX) atypical-for-PIMCO yield focus, its heavier-than-usual reliance on sectors less tied to day-to-day macro decisions, and its strong resources (including group head and fund manager Dan Ivascyn) have helped isolate it from those troubles. The fund has been pulling in assets hand over fist at a time when its favorite markets are shrinking, though, which is partly responsible for keeping its Morningstar Analyst Rating at Silver and not higher.

Marrying PIMCO's Big-Picture Process With a Special Set of Weapons
Like all of PIMCO's funds, this one relies on numerous top-down and bottom-up calls. Thanks to its income focus, this one has weightings in higher-yielding areas, such as high-yield corporates and non-U.S. bonds, and has for years had a strong taste for nonagency mortgages relative to the multisector-bond Morningstar category. This also means that while the fund will reflect PIMCO's macro themes when implementing its strategy, its portfolio will diverge meaningfully from siblings such as  PIMCO Total Return (PTTRX). The fund also typically employs some leverage, which has occasionally spiked as high as the mid-double-digits, mostly via derivatives, though the deftness of management has kept it modest at the right times and kept the fund from feeling much painful volatility.

Eric Jacobson has a position in the following securities mentioned above: PTTRX. Find out about Morningstar’s editorial policies.