PIMCO Diversified Fixed Income Fund earns ‘Highly Recommended’ rating from Lonsec

• This is the first time this fund has been rated by Lonsec.
• The ‘Highly Recommended’ rating is Lonsec’s highest rating.

Fixed interest manager PIMCO Australia’s EQT Diversified Fixed Income Fund has been awarded a ‘Highly Recommended’ rating by Lonsec, in its first rating of this fund.

The actively managed DFI fund provides a broadly diversified exposure to domestic and international fixed interest markets by investing 50% in the PIMCO Australian Bond Fund and 50% in the PIMCO Global Bond Fund. The fund will at times also have a modest allocation to high yield and emerging markets debt.

“This rating primarily reflects Lonsec’s regard for the depth and quality of PIMCO’s investment team which is focused on top down and bottom-up analysis. Lonsec believes PIMCO benefits from a well established top down and bottom up portfolio construction process with highly formalised and disciplined decision making covering duration, yield curve and sector positioning, driven by its Global Investment Committee,” said Andrew Coutts, Lonsec senior investment analyst.

The global portfolio is managed in the US by PIMCO founder Bill Gross, with the domestic portfolio managed by Rob Mead.

“Lonsec regards Rob Mead as a quality investment professional with significant experience in the industry and with PIMCO,” Mr Coutts said.

The Lonsec review “notes that the Fund has exhibited the strongest track record in the Lonsec Peer Group of outperformance across both ‘down’ (63%) and ‘up’ (68%) markets over the three years to November 2010, with ‘all’ markets outperformance for the Fund also being 67% compared to the Lonsec Peer Group’s average of 49%.”

Lonsec notes the Fund’s ‘total return’ approach implies a degree of indifference as to the source of returns either from income/distributions (e.g. coupons) or growth (e.g. asset price growth).

“This may result in significant active positions away from the benchmark in an attempt to add value for investors,” said Mr Coutts. The Manager believes that focusing on the on longer term (3-5 year) secular trends presents better opportunities for the Manager to outperform relative to the broader market.

“Lonsec is pleased with PIMCO’s renewed emphasis on risk management, including the development of advanced risk management and portfolio monitoring systems,” Mr Coutts said.

The fund is managed to maximise total returns, with a target tracking error of 2-3% relative to a composite benchmark, which comprises the Barclays Capital Global Aggregate Bond Index hedged to Australian dollars and the UBS Australian Composite Bond Index.