PIMCO Economic Outlook, September 2014

The U.S. economic policy mix in the post-crisis era has been far from perfect. But, when compared and contrasted with policies enacted in other countries over the same period, the relative lack of policy dissonance in the U.S. clearly stands out, giving birth to our forecast of superior cyclical U.S. economic performance versus the rest of the world. Click here to read the full report.

The post PIMCO cyclical outlook: Policy dissonance and geopolitical risk beget economic decoupling appeared first on AdviserVoice.

Over the past few years, more thought has been given to retirement income strategies, but the market is still relatively immature in terms of solutions available. Now, Australia’s ageing population and increasing life expectancies are bringing the post-retirement market to the forefront.

Click here to read the full report from PIMCO.

The post Retirement income options: The next step for Australia appeared first on AdviserVoice.

PIMCO’s Global Week of Volunteering

The PIMCO Foundation, PIMCO’s charitable arm, began its sixth annual Global Week of Volunteering this week.

More than 900 PIMCO employees will participate in more than 100 diverse, community-based projects around the world. The effort is part of the year-round global Volunteer Initiative spearheaded by the PIMCO Foundation, which was established in 2001 to support nonprofit organizations operating within the firm’s communities.

Many PIMCO employees volunteer year-round, directly and through organized events. The annual Global Week of Volunteering and other PIMCO Foundation sponsored events aim to bring together company employees, their families and friends to help empower some of the world’s most vulnerable populations to reach their full potential. This year, all PIMCO offices around the world will hold events.

“PIMCO and its employees believe in giving back to their communities,” said Doug Hodge, PIMCO’s Chief Executive Officer and President of the PIMCO Foundation. “By working with local organisations, the PIMCO Foundation is committed to improving lives, communities and culture by empowering those in need.”

This week employees in the Sydney office have participated in a number of Global Week of Volunteering activities, including:

• School Ground Clean Up at Joseph Varga School in Randwick
• Oz Harvest – Cooking for a Cause in Marrickville
• Aged Care Morning Tea in North Ryde
• Foreshore Clean up in Sydney Harbour

The post The PIMCO Foundation Holds 6th Annual Global Week of Volunteering appeared first on AdviserVoice.

In his new role, Mr. Stewart will be responsible for leading PIMCO’s business in Australia, including serving the firm’s institutional and wealth management clients.

“Adrian is an important addition to the Asia-Pacific senior leadership team and his hiring further strengthens our leadership team and capabilities to serve our clients in Australia, which is a key market for PIMCO,” said Mr. Mogelof.

Added Rob Mead, Managing Director and Head of Portfolio Management Australia, “Adrian brings more than 22 years of experience to the team and has the knowledge and expertise needed to help lead the Australian business forward.”

The post PIMCO Appoints Adrian Stewart as Executive Vice President and Head of PIMCO Australia appeared first on AdviserVoice.

He will report to Douglas Hodge, Managing Director and PIMCO’s Chief Executive Officer. Mr. Mogelof will continue to serve as a member of PIMCO’s Executive Committee, the governing body that sets policy and strategic direction for the firm.

“Eric’s appointment underscores PIMCO’s commitment to the Asia Pacific region and our focus on delivering superior investment results and world class service. He will play a key leadership role in the next phase of these ongoing efforts,” said Mr. Hodge.

Said Mr. Mogelof, “Asia Pacific is a vitally important region for PIMCO. The investment landscape PIMCO has characterized as the New Neutral presents significant opportunities and risks for the region. We are committed to helping our clients navigate this environment by delivering unique investment solutions.”

Mr. Mogelof joined PIMCO in 2003, and has demonstrated leadership across several key areas of the firm. Previously, he was Head of Americas Institutional Business and Global Head of PIMCO Advisory. Mr. Mogelof will relocate from New York to Hong Kong in August 2014.

The post PIMCO names Eric J. Mogelof as Head of Asia Pacific appeared first on AdviserVoice.

Harvey Kalman

Equity Trustees is starting to see traction in transactions on the mFund Settlement Service, with applications for PIMCO and Armytage Private Funds being made through Baillieu Holst recently, says Mr Harvey Kalman, Equity Trustees’ Head of Corporate Fiduciary & Financial Services.

The mFund Settlement Service is an ASX initiative that allows investors to buy and sell units in selected unlisted managed funds (mFunds) through a process similar to investing in shares. These funds can be bought and sold through an ASX stockbroker online, in person or through a financial adviser who uses a stockbroking service on their behalf.

“Equity Trustees has successfully received applications on the mFund platform and looks forward to continued support for the service from brokers and investment managers alike,” Mr Kalman says.

Baillieu Holst Director of Institutional Sales, Mr Alex Hay, says as a foundation member of the mFund Settlement Service, the firm has now made a number of applications via the service and is pleased with the progress.

“Our clients like the convenience of tracking their managed fund investments using the same systems they use for shares and other securities, and the service has been well received,” Mr Hay says.

Equity Trustees was the first foundation member of the service and, together with its investment manager partners, EQT Asset Management, PIMCO, LaSalle and SG Hiscock & Company, offers a diversified range of funds through the service for retail investors.

Equity Trustees also acts as a Product Issuer Settlement Participant and was accredited by the ASX in May 2014.

There are 14 Funds available on the mFund Settlement Service from Equity Trustees and its investment partner managers, providing investors with access to all asset classes with the exception of international equities, which will be available soon. The funds are:

Equity Trustees Asset Management: 

• EQT Wholesale Flagship Fund
•  EQT Australian Equity Income Fund

PIMCO Australia:

• PIMCO EQT Wholesale Global Credit Fund
• PIMCO EQT Wholesale Diversified Fixed Interest Fund
• PIMCO EQT Wholesale Global Bond Fund
• PIMCO EQT Wholesale Australian Bond Fund
• PIMCO EQT Wholesale Australian Focus Fund
• PIMCO EQT Wholesale Global Unconstrained Bond Fund

SG Hiscock & Company:

• SGH20 (Australian equities)
•  SGH ICE (Australian equities)
• EQT SGH Wholesale Property Income Fund
• EQT SGH Wholesale Small Companies Fund

 LaSalle Investment Management :

• EQT SGH La Salle Global Listed Property Securities Trust
• EQT SGH LaSalle Global Property-Rich Trust

The post ASX mFund settlement service gains traction appeared first on AdviserVoice.

The mFund Settlement Service is an ASX initiative that allows investors to buy and sell units in selected unlisted managed funds (mFunds), through a process similar to investing in shares.  They can be bought and sold through their ASX stockbroker online, in person or through a financial adviser who uses a stockbroking service on their behalf.

Mr Harvey Kalman, head of EQT corporate fiduciary and financial services, said Equity Trustees was the first foundation member of the service and, together with its investment manager partners, EQT, PIMCO, LaSalle and SG Hiscock & Company, offers a diversified range of funds through the service for retail investors.

“In all EQT has 14 funds currently available on the mFund Settlement Service which means investors will now have access to all asset classes through mFund, with the exception of International Equities which will be available in June,” Mr Kalman says.

“Investors have access to fixed interest, Australian equities including large cap, small companies, franchise, dividend income and concentrated, and global and Australian listed property securities.”

Marcus Christoe from ASX said: “EQT as a foundation member brings a significant opportunity to provide investors and their advisers with access to a growing range of investment options in a way that is easier and more efficient; removing paper based applications and cumbersome identification procedure from the process. The service will provide investors already familiar with transacting shares using an ASX stockbroker access to unlisted managed funds.”

The post Retail investors and SMSFs set to benefit from ASX mFund settlement service appeared first on AdviserVoice.

Assessing risk/reward alternatives to term deposits.

Advisers seeking to provide clients with other options to term deposits need to assess alternatives that offer a combination of liquidity, yield, capital stability and reduced risk, and in particular that manage sequencing risk, says Harvey Kalman, EQT head of corporate fiduciary & financial services. EQT acts as responsible entity of the PIMCO EQT Australian Focus Fund.

“While investors might not know what sequencing risk means, those that have retired in the last several years certainly know its impact on their retirement savings and are increasingly looking for help in finding fixed interest investment approaches that can manage this risk, without adding risk elsewhere,” he said.

Commenting on the role of advisers in helping investors in the current low interest environment, PIMCO head of global wealth management in Australia, Peter Dorrian, said, “Transitioning investors successfully from bank term deposits requires a thoughtful approach. While these investors likely want an attractive return, many are also seeking to preserve their capital. Short duration, high-quality fixed interest products which offer yields higher than cash with low volatility can provide an appropriate solution.”

As part of its ongoing management process, PIMCO and EQT have recently reviewed the PIMCO EQT Australian Focus Fund to ensure it continues to have the flexibility to anticipate and respond to interest rate movements, and that it meets its stated aims of delivering good performance while protecting investor capital.

In particular, the impacts on investors of sequencing risk were considered – such as how uneven returns affect retirees.

Mr Kalman said that feedback from advisers has shown that there is growing client demand for alternatives to term deposits but uncertainty remains about the best options.

“The key objective of the Australian Focus Fund is to preserve capital and provide higher returns than cash investments, notably term deposits, which is precisely what investors are currently looking for.

“The fund can play a useful defensive role in investor portfolios because PIMCO’s fixed interest team has the discretion to increase the duration of the fund to take advantage of bond price gains when interest rates decline, or lower duration when rates rise,” Mr Kalman said.

Robert Mead, head of Australia portfolio management and head of Asia-Pacific credit portfolio management, PIMCO, added that PIMCO is currently seeing strong value in bonds issued by Australian companies in other currencies, such as the US dollar and the Euro.

“After hedging the currency risk, these securities offer very attractive returns. In addition, many State Government bonds offer significantly higher yields than comparable federal government bonds and still have very high credit quality.

“A strategy which offers selective exposure to these securities and other high-quality bond sectors with attractive risk-return characteristics should be a desirable alternative for investors who want stable income,” Mr Mead said.

The post Managing risk in a portfolio through fixed interest appeared first on AdviserVoice.

Federal Reserve building, Washington DC.

Let’s jump to this note’s conclusion: Past is not prologue for the projected path of the Fed’s policy rate. Expect the Federal Reserve to keep its policy rate low for a very long time. A baby born today will probably be in kindergarten by the time the Fed adopts a neutral stance on monetary policy.

Back in the day, when the Federal Reserve decided it was time to unwind its easy money policies, it would raise its policy rate, the federal funds rate, persistently until it moved above 4%, the level the Fed believes is consistent with a neutral stance on monetary policy. The central bank’s past three rate hike cycles – 2004 to 2006, 1999 to 2000, and 1994 to 1995 – ended at 5.25%, 6.50%, and 6.00%, respectively.

Whereas the Fed in the previous three cycles increased the federal funds rate within 18 months of last cutting it, today nearly five years after the Fed lowered its policy rate to zero, the Fed is still easing, providing new monetary accommodation each time it buys bonds through its so-called quantitative easing program. No end to purchases appears likely before at least the middle of next year, if not later, given that the Fed announced in its September 18th policy statement that it had decided against reducing, a surprise to markets.

Importantly, a considerable time will pass before the end of the Fed’s bond buying and its first rate hike. The Fed said as much in its policy statement, which, along with the “no taper” decision, contained the clearest indications yet that the path to a normalisation of interest rates will be anything but normal. Call it a new normalisation – for rates, that is.

Investment Implications

For bond investors, the Federal Reserve’s decision to delay a taper will relieve some of the upward pressure on longer-term interest rates, where the Fed’s buying is greatest as a percentage of overall issuance.

Other parts of the yield curve may fare better, however, owing to the Fed’s enhanced forward guidance and its 2016 rate projection. We believe intermediate maturities should benefit most, as rate hikes were disproportionately priced into that part of the curve during the summer turbulence.

Elsewhere in markets, prospects should improve for forward rates (as seen in eurodollar futures), where large speculators had done a big “Switcheroo,” and had moved from long to short, to price in rate hikes that PIMCO believes are improbable given our forecast for the first hike to occur in 2016.

Finally, as we have stressed for some time now, stay focused on three things most of all when thinking about the Fed and why the normalisation of monetary policy is anything but normal:

The policy rate,

the policy rate,

and the policy rate!

The post The New Normalisation – of Fed Policy; a note from PIMCO appeared first on AdviserVoice.

Investors need to be flexible given the US situation.

Ever since the U.S. Federal Reserve (Fed) Chairman Ben Bernanke’s “tapering” speech on 19 June at a press conference in Washington, D.C., which fueled investor anxiety regarding the future course of Fed monetary policy, many investors are asking one thing, is this the start of something more ominous?

We don’t think so. Global economies are structurally too weak and inflation pressures, for the most part, nonexistent for a potential rise in interest rates to signal the start of a secular bear market in bonds and other financial assets. This does not mean volatility won’t continue to be high, nor does it mean rates won’t notch higher before settling down. It does suggest global markets now expect a full Fed reversal rather than just tapering, such that there is a lot of bad news already built into the markets. As U.S. mortgage rates have risen back above 4%, there is an added drag on the economy that could affect current growth dynamics and keep inflation further retrenched.

So what does this mean for investors?

In such an uncertain environment, investors need to keep the following in mind.

First, they need to be flexible, retaining both the resilience to stay on the road when hitting S-curves and the agility to turn left or right when coming into T-junctions. This means having real diversification, being able to play both offence and defence, maintaining liquidity and dry powder, considering tail risk hedges and employing strong and proactive governance structures to be able to move quickly and forcefully when necessary.

Second, investors may want think about pivoting to “alpha” (with a focus on generating excess returns) as the days of easy “beta” (simply earning high market-based returns) are behind us. This includes building smarter betas, adopting better benchmarks and adding discretion in core portfolios. And, for those with specific absolute return, income or hedging needs, it means moving to more outcome-oriented solutions.

Third, we believe investors should stay active. This is more than a good health tip. It means maximising investment flexibility by not locking in passive allocations, beta exposures, portfolio structures and hedges. There are times when passive strategies can offer value, but likely not in the current environment.

Fourth, they need to be forward-thinking. Move away from asset-class-based to risk-factor-based asset allocations; from historical to forward-looking return methodology; from market value to GDP-weighted benchmarks; and from alpha-generating strategies that worked in the past to those better suited for today’s investment landscape. History provides important perspective, which we ignore at our own peril, but we have to look forward to stay on the road.

Finally, investors need to be patient. We’re still in a state of disequilibrium. Now is not the time to go all in or be all out.

The post Investing in an (Un)stable Disequilibrium: Which Way Is Up? appeared first on AdviserVoice.