- Diversified portfolio of stocks and bonds
- PIMCO's total return strategy combined with NFJ's equity income strategy
- Experienced, specialized management
Process & Philosophy
PIMCO: Leading Fixed-Income Managers
TOTAL RETURN PHILOSOPHY
PIMCO differentiates itself from many managers by taking a total return approach to bond management. Rather than seek only income, PIMCO pursues maximum total return-income plus capital appreciation. Mr. Gross pioneered this philosophy and process over 30 years ago, and it has been critical to the firm's long-term performance record.
Supporting PIMCO's focus on total return is a commitment to active portfolio management within a long-term (secular) framework.
- Annual secular forum-Meet, along with leading outside experts, to develop a 3-5 year outlook for the economy, inflation and interest rates.
- Quarterly cyclical forums-Apply long-term outlook to the upcoming 3-12 months and forecast specific influencing factors, including interest rate volatility, yield curve movement and credit trends.
- Portfolio guidelines-Use shorter-term outlook to make portfolio-specific decisions, including duration, yield curve position, sector weightings and credit quality.
Rather than make big bets on interest rates or maturity, PIMCO uses a variety of value-adding strategies to increase the opportunity for total return potential and to help reduce portfolio risk. Using this range of strategies lessens the portfolio's dependence on any one strategy for success.
NFJ adheres to a strict value philosophy, seeking undervalued, fundamentally sound companies. What sets the firm apart from many other value-oriented managers is its emphasis on risk control. To help temper risk, NFJ maintains broad industry diversification and requires that each stock pay a dividend-a characteristic they believe is an important sign of financial stability.
DISCIPLINED INVESTMENT PROCESS
NFJ's investment process enables it to identify stocks offering attractive valuations and long-term growth potential. At the same time, the process seeks to control total portfolio risk.
- Screen for positive fundamentals-Apply a screen for positive fundamental characteristics to a universe of approximately 1,000 mid- to large-cap stocks.
- Conduct in-depth research and analysis-Research each of the remaining 300-500 possible investments, looking for companies with low price-to-earnings multiples, high dividend yields, positive prospective earnings and quality operations.
- Restrict industry concentrations-Avoid overexposure to any one sector by restricting the number of stocks held in a single industry.
- Construct portfolio-Select approximately 40-50 of the most attractive securities identified, usually crossing 50 or more industries.
- Regularly monitor for buy and sell candidates-Continually repeat the research process to identify new buy and sell candidates. Sell a stock when an alternative stock with equally strong fundamentals demonstrates a substantially lower price-to-earnings ratio, and/or a substantially higher dividend yield.
BENEFITS OF DIVERSIFICATION
Changes in the economy affect stocks and bonds in different ways. By holding a diversified portfolio that includes both, you can lessen the impact of a decline in either market and potentially enhance long-term returns. Our Balanced managed account portfolio is an efficient way to secure these benefits of diversification.
PIMCO and NFJ Investment Group work together to construct the Balanced managed account portfolio.
- Asset allocation-At the start, 50% of the assets are allocated to the fixed-income portion of the portfolio and 50% to the equity portion. The portfolio will be rebalanced when the allocation shifts by more than 10 percentage points, with the constraint that the market value of the fixed-income portion of the portfolio may not fall below $55,000.
- Fixed-income investments-PIMCO's total return strategy divides the portfolio into three sections: a core section of individual bonds and two sector-oriented commingled vehicles. The core section represents 60%-80% of the overall portfolio and focuses on extremely liquid bonds of the highest credit quality. The two sector-oriented segments each represent 0%-40% of the portfolio and invest in specialized areas of the bond market on a cost-effective basis. The commingled vehicles offer the ability to gain access to areas of market that would otherwise be difficult to access.
- Equity investments-According to its equity income strategy, NFJ screens a universe of approximately 1,000 dividend-paying stocks for positive fundamental characteristics, and then conducts in-depth research and analysis. Remaining candidates are segmented by industry. NFJ selects the 40 most attractive options, avoiding overexposure to any one security or industry. Each selected holding pays a dividend.