The PIMCO manager says active management can capitalize on trends such underpriced inflation protection, housing upside, and more in today's market.
Sumit Desai: Hi, I'm Sumit Desai, senior analyst in Morningstar's fixed-income manager research group.
Joining me today is Mark Kiesel, chief investment officer and head of global credit research for PIMCO. He is the co-portfolio manager for the PIMCO Total Return Fund and the lead portfolio manager for PIMCO Investment Grade Corporate Bond Fund, the Long Term Credit Fund, and PIMCO's Credit Absolute Return Fund.
Mark, thank you for joining me today.
Mark Kiesel: Nice to be here. Thank you.
Desai: Mark, the last time we spoke was about a year ago. It was right after a lot of the changes were made at PIMCO following the departure of Bill Gross. Can you talk about how the past year has been and how the company is doing from a culture and morale standpoint?
Kiesel: The company is actually doing really well. As you know, PIMCO has 2,400 employees and 13 offices in 12 countries, and nothing about our process has changed. Clearly we lost Bill, our founder, but basically we've put in a team approach to managing Total Return. Myself, Scott Mather, and Mihir--we've been leveraging our top-down process, which has been in place since inception, since 1971, screening the countries and the companies from a bottom-up perspective. We're still leveraging the 60 analysts and also leveraging the 260 portfolio managers around the world to assess the relative value.
Through that screening process, the team has come together, and we're identifying a lot of opportunities and trying to get investors in areas where we find good returns for them.
So, overall, while we've seen outflows initially, those flows have now stabilized, and we're actually seeing inflows in [the] Income and Credit [funds]. And so, overall, PIMCO is doing well.
Desai: You mentioned outflows and, within the context of the PIMCO Total Return Fund, it seems like the market uses that as a gauge for the overall condition of PIMCO. Can you talk in more detail about the flows within the PIMCO Total Return Fund and any specifics around how you manage around that?
Kiesel: Overall, PIMCO is doing well;we're on solid footing. It is true that the products that Bill managed had seen outflows, but overall even those outflows are stabilizing, and the firm overall has stabilized.
The performance has been decent. In fact, many strategies are adding significant alpha for clients. Income has seen a lot of inflows. Credit has seen inflows. We're delivering a lot of value from a bottom-up perspective.
Importantly, we're finding a lot of opportunity today for clients. We think traditional, passive index strategies do not make sense. They expose investors to unwarranted risks, like too much interest-rate risk.
PIMCO, as you know, has over a 40-year history of active management. We think active management today is going to do very well in the context of a global bond market. We see a lot of value in TIPS. We think inflation is underpriced. The economy is actually doing very well. We're about to see the first red Fed rate hike in nine years, and ultimately we think inflation is going to start to come back up, and TIPS will be a very good investment.
We still like housing, that's a sector that you and I have talked about for years. We think we're actually in mid-cycle. Housing still has many years of upside in terms of positive fundamentals, and so active management can pay a lot of dividends today.
We're comfortable with our process. It's been in place for over 40 years, and we think PIMCO is doing quite well and is well positioned for the future.
