PIMCO Gets Back to Business

This analyst blog is part of our coverage of the 2015 Morningstar Investment Conference.

While news surrounding PIMCO the past nine months has been more about asset outflows than anything else, they have quietly been posting strong performance numbers across their flagship funds, such as

PIMIX. For example, PIMCO Income is in the top 6% of multisector-bond funds year to date through May 2015.

Additionally, despite

However, this isn't the only key to their strong performance. PIMCO has also been bolstering its global portfolio management team--now more than 250 people strong globally--to help generate alpha for investors. PIMCO has also instituted employee retention programs to ensure that strong performers stay and limit turnover.

That's not to say that PIMCO's portfolio managers still aren't searching for investment ideas day and night. Doug Hodge, 26-year PIMCO veteran and current firm CEO, stated that performance was the "DNA" of PIMCO's culture and they expect only the best from everyone and continue to promote an up-or-out culture with regard to portfolio managers. In addition to employee retention, they have also bolstered their global investment committee to increase communication across all investment professionals across the globe.

One of the notable recent hires to the PIMCO advisor staff is former Federal Reserve chairman Ben Bernanke. Ben Bernanke adds to an already impressive list of advisors that PIMCO can call on to discuss a variety of global market factors. One such meeting involved Gene Sperling, former director of the National Economic Council and assistant to the president for economic policy under Bill Clinton and Barack Obama. Just this week, PIMCO brought in Sperling to discuss U.S. public policy as well as the upcoming U.S. presidential election and its potential impact on the markets.

Ideas from these advisors, as well as from its 250-person portfolio-management team, help PIMCO shape its global, firmwide investment mandate. Currently, this mandate includes expectations that global markets will grow more slowly over the next three to five years than they have historically. Further, it includes PIMCO's "new normal," or the idea that interest rates and inflation won't return to historical averages. However, they still think there will be tactical opportunities in the short term. For example, they still expect the U.S. to be the fastest-growing developed economy.

All in all, Ivascyn and Hodge think that the market is ripe for active managers to outperform their passive counterparts going forward. This is because they believe the Fed will likely raise interest rates before the end of the year, which will lead to increased volatility and provide tactical investment opportunities. To take advantage of this, PIMCO is currently holding a greater cash position than they have historically. That said, they did warn that investors need to temper their expectations for bond returns going forward. Ivascyn believes that investment-grade bonds will likely only yield 2% to 3% a year going forward.