After the tumult that followed the high-profile departure of co-founder and former “bond king” Bill Gross, PIMCO has bled assets from its fixed-income business, its traditional stronghold. The outflows have been so severe that CEO Douglas Hodge sent a recent 27-page letter to the Financial Stability Board to let them know that the $50 billion in redemptions did not pose a systemic risk to the economy.
Now, with global debt markets in flux and most investors looking ahead to a Federal Reserve rate hike, PIMCO is expanding its presence in the equities space with six strategies designed to outperform market indexes.
“In a low return world, investors are looking for approaches that provide meaningful return on top of what the market delivers, which can make a big difference over the long term,” said PIMCO managing director and equity product manager Sabrina Callin, in a recent statement. “PIMCO’s Enhanced Equity strategies provide investors with a range of equity offerings that are designed to achieve this goal.”
The new funds are designed to provide exposure to U.S. large caps, U.S. small caps, international (ex-U.S.) stocks, global (including U.S.) stocks, and emerging markets. The six new RAE Fundamental funds include:
- RAE Fundamental US Fund (PKAIX)
- RAE Fundamental US Small Fund (PMJIX)
- RAE Fundamental International Fund (PPYIX)
- RAE Fundamental Global Fund (PFQIX)
- RAE Fundamental Global Ex-US Fund (PZRIX)
- RAE Fundamental Emerging Markets Fund (PEIFX)
Each is available in A, C, institutional, and P-class shares. Ms. Callin and John West of Research Affiliates explain how the new funds build on smart beta in a new white paper published by PIMCO. (Editor’s Note: While these new funds are marketed as smart beta products, they are more closely aligned with a category of products described as “Enhanced Indexing” due to the fact that they will likely have a high correlation to their cap-weighted benchmarks, and a beta close to 1.)
The holdings of each fund are weighted according to non-market cap measures, such as sales, cash flow, book value, or dividend payments. The objective of the funds is to capitalize on market inefficiencies and systematically capture returns when prices deviate from the fundamentals of the underlying companies, thereby allowing the funds to outperform market cap-based benchmarks. Furthermore, each of the RAE Fundamental funds’ holdings are augmented by “active insights” based on proprietary research and designed to further enhance risk-adjusted returns.
The new funds are part of PIMCO’s Enhanced Equity Suite, which also includes the StocksPLUS and RAE Fundamental PLUS funds. In all, fixed-income specialist PIMCO manages more than $50 billion in equity-related investments.