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Fund Rationale: PIMCO GIS Emerging Markets Bond Fund

PIMCO GIS Emerging Markets Bond Fund
SGD Hedged Institutional Class Accumulation Shares (ISIN: IE00BG88PX59)

Fund Manager Page

Introductory information
The PIMCO GIS Emerging Markets Bond Fund (the “Fund”) takes a value-focused approach to access some of the world’s fastest-growing developing economies, with actively managed investments in US dollar or local currency denominated emerging market ("EM") fixed income instruments. The Fund is hedged back to Singapore dollars. The Fund aims to capture EM’s higher yield and growth potential while moderating and navigating the traditionally heightened risks of the asset class. The Fund is actively managed to maximise total return potential and minimise risk relative to the benchmark, which is the JPMorgan Emerging Markets Bond Index ("EMBI") Global (SGD Hedged). The Fund is suitable for investors seeking diversified exposure to fixed income markets that are economically tied to emerging market countries and are willing to accept the risks and volatility associated with investing in such markets, and have an investment horizon over the medium to long-term.

The inception date of the oldest share class of the Fund is 31 July 2001, while the SGD Class I Accumulation shares were incepted on 2 July 2018. As of September 2020, the Fund managed a total asset of SGD 5.5bn.

 

Characteristics
The Fund is a diverse portfolio consisting primarily of fixed income securities from issuers in, or economically tied to, emerging or developing countries. The Fund is likely to concentrate its investments in Asia, Africa, the Middle East, Latin America and the developing countries of Europe, although assets may be denominated in US dollars or local currencies.

The Fund takes a value-focused approach to accessing some of the world’s fastest growing developing economies, with actively managed investments in US dollar or local currency denominated emerging market (EM) fixed income instruments to maximise total return potential and minimise risk relative to the benchmark. The fund may use or invest in financial derivatives.

As of July 2020, the majority of the Fund’s NAV was allocated in durations between 10 to 20 years (56%), followed by 34% for 5 to 10 years. Its top 10 currency exposures include Japan, Peru, Dominican Republic, Mexico, the UK, Hungary, South Africa, Switzerland, China, and Australia.

 

Background information and cost
The Fund has a unified all-in management fee of 79bps per annum (0.79% p.a.). Endowus do not charge a preliminary sales charge or any other fees, other than the all-in advice fee.

PIMCO have been managing EM portfolios since the inception of the oldest share class on 31 July 2001. The portfolio managers are Michael A. Gomez, Yacov Arnopolin, Francesc Balcells and a seasoned team of 22 EM investment professionals as well as PIMCO’s firm-wide resources of 50+ credit analysts, 55+ quantitative analysts and 12 dedicated portfolio risk managers across the world.

 

Selection criteria for Endowus
Endowus have selected the PIMCO GIS Emerging Markets Bond Fund for its strong historical track record of delivering consistent and regular outperformance above the benchmark and against investible peers including ETFs and other fixed income asset classes. Over the secular horizon, we believe EM bonds, as an asset class, are an attractive addition to Endowus portfolios due to structural advantages over developed markets and favourable technicals. The Fund offers efficient exposure to emerging markets, potential for attractive risk-adjusted returns and low correlations to other asset classes.

Within the Endowus portfolio, we measure the correlation and the covariance between asset classes and funds selected to optimise the portfolio to obtain the highest risk-adjusted returns. EM bonds have had relatively low historical correlations with other fixed income assets, such as U.S. Treasuries, and may help enhance overall portfolio diversification. While diversification can reduce risk, it does not guarantee a profit or necessarily protects against loss.

Opportunities in EM are frequently misunderstood and therefore mispriced by market participants. The EM space has unique risk characteristics with a heavy focus on macro and bottom-up fundamentals that are often affected by (geo)politics and local reform cycles, which in turn affect medium to long-term returns. PIMCO’s deep EM expertise and disciplined investment style therefore helps the team evaluate prospects for each country and invest selectively for the fund to maximise returns while managing the risks. The Fund employs active management of emerging market bonds through the use of in-depth fundamental analysis, integrated quantitative techniques, and sound risk management of the portfolio exposures across multiple risk factors (e.g. duration, curve, FX risk), to capitalise on these market imperfections and potentially generate excess returns over a full market cycle.

Updated by Endowus: 26 Oct 2020

** Disclaimer
Past performance should not be taken as an indication or guarantee of future performance and no representation or warranty, express or implied, is made regarding future performance. Any opinions expressed reflect a judgment at the original date of publication by us and are subject to change without notice.

The prospectus, profile statement, product highlight sheet, fund factsheet or other offer or product documents may contain references about the expected risk tolerance of their target investors. These are in no way indicative of how we at Endowus have assessed your risk tolerance based on your stated objectives and financial situation. Endowus accepts no responsibility for investment decisions made in response to the expected risk tolerance levels mentioned in the product or offer documents.