Tag Archives: seeking-alpha

3 Top-Rated PIMCO Mutual Funds To Strengthen Your Portfolio

Pacific Investment Management Company, LLC (commonly known as PIMCO) is a renowned investment management firm, headquartered in Newport Beach, California. The company was founded in 1971. In 2000, the company was acquired by Allianz Asset Management of America L.P. However, it continues to operate as an autonomous subsidiary of Allianz ( OTCQX:AZSEY ). It boasts more than 2,000 employees working in 13 offices across 12 countries. It manages assets worth $1.52 trillion (as of June 30, 2015). It offers a broad lineup of investment solutions to its clients that encompass the entire gamut of equities, bonds, currencies, real estates, alternative investments and risk management. Below we share with you the 3 top-rated PIMCO mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and we expect the fund to outperform its peers in the future. PIMCO High Yield Municipal Bond Fund A (MUTF: PYMAX ) invests a major portion of its assets in debt obligations that are expected to provide income that are free from federal income tax. PYMAX may invest in investment grade municipal bonds and not more than 30% of its assets in “private activity” bonds. The PIMCO High Yield Municipal Bond A fund has returned 5.2% in the last one year. PYMAX has an expense ratio of 0.85% as compared to a category average of 0.97%. PIMCO Mortgage-Backed Securities Fund A (MUTF: PMRAX ) seeks total return. PMRAX invests a large portion of its assets in a diversified portfolio of mortgage-related Fixed Income Instruments. PMRAX may also invest in derivative instruments including options, futures contracts and swap agreements. The PIMCO Mortgage-Backed Securities A fund has returned 1.9% in the last one year. As of June 2015, PMRAX held 550 issues, with 11.28% of its total assets invested in FNMA. PIMCO Global Bond (USD-Hedged) Fund A (MUTF: PAIIX ) invests the majority of its assets in Fixed Income Instruments that are economically linked to a minimum of three nations including the U.S. PAIIX generally invests at least 25% of its assets in Fixed Income Instruments, which are economically tied to non-U.S. countries. PAIIX may also invest in derivative instruments. The PIMCO Global Bond (USD-Hedged) A is a non-diversified fund and has returned 1.5% in the last one year. PAIIX has an expense ratio of 0.90% as compared to a category average of 1.03%. Original Post

Things Won’t Stay The Same

My kids keep growing up, and it continues to surprise me. One who was just learning to stay upright is now a constant chatterbox and a daredevil on her Strider bike. The other seems to have grown a foot this year, and has gone from quiet and reserved to confident ringleader of her friends. But the realization I’ve recently had is that it is so easy for us to assume the current state of affairs will perpetuate into the future. The little baby who was so happy to sit and play with a toy was suddenly gone, whether I was prepared for it or not. Someday soon, both of my girls will be in high school fighting over clothes and car keys. In the moment, that is hard to remember. Whether things are great and everyone in the house is sleeping and happy and playing nicely together or we’re up four times a night and separating a fight every twenty minutes, it is easy to believe that this is how things will always be. In behavioral finance, this effect is known as recency bias . It is our strong tendency to extrapolate recent events forward into the future. And investors do this all the time. I mean all the time . In March 2009, as the stock market was approaching generational lows, the most popular headlines and predictions were that the Dow Jones Industrial Average, having just passed below 7000, would continue to drop as low as 3000. And of course, the most famous example of recency bias is the book Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market . Published near the height of the stock market in 1999, when the DJIA was just above 11,000, the book was wildly wrong. But it was a perfect example of how easy it is for us to see a pattern and project it into the future. We haven’t learned much since the 2008-2009 bear market or the late ’90s tech bubble. Oil prices seem to been in a near free fall for the past few years. So guess what is being predicted? More declines! Goldman Sachs suggested that oil prices could go to $20 a barrel in September. Of course, in 2008, Goldman Sachs also predicted that prices, then over $140 a barrel, would eventually surpass $200 a barrel. Making professional predictions is fairly easy – you take the recent changes and extrapolate them into the future. Tada! And of course, it isn’t just professionals making outlandish predictions that fall prey to recency issues. Individual investors are just as bad. Emerging markets have been dismal for the past several years. Returns have been negative so far in 2015, and emerging market stocks lost money in 3 of the last 4 calendar years. In May 2015, EM stocks started a nasty slide. By September, investors assuming that the recent past would continue indefinitely had had enough, and started pulling money out of these funds. Here’s what flows out of Vanguard’s Emerging Markets ETF looked like this year. Investors love to hear and talk about what is going on in the market “right now.” We love this idea because we assume that “right now” will continue into the future. But what is true today won’t necessarily be true tomorrow. The world is a changing place, and always has been. Don’t be fooled thinking anything else.

Jeremy Siegel’s Case For Equities

Jeremy Siegel has done more work on historical stock returns than pretty much anyone. He literally wrote the book on it, pulling stock data going back to 1802 for Stocks for the Long Run . In a recent Master in Business podcast interview he summed up his case for equities simply: What I showed was when you stretch out your holding period, up to 15, 20, 30 years, stocks actually were safer than bonds – had a lower variance and lower volatility than bonds. The long term, of course, gets overlooked with stocks. Everything – returns, variance, volatility – smooths out once you start to stack years together. I’ve broken down the S&P 500 returns over longer periods before. Since 1926, one-year returns range from a 54% gain to a 43% loss. If you put five years together, the annual returns range from a 29% gain to a 12% loss. Ten-year annual returns range from a 20% gain to a 1% loss. Fifteen-year annual returns range from a 19% gain to a 1% gain. Notice a trend? The range of possible returns shrinks as you extend the holding period. This is why stocks are Siegel’s asset of choice: If we know that return over that longer period of time is going to beat bonds by 3-4-5% per year, wow, that becomes the asset of choice for the long run. So why not only own stocks? Because people still fixate on one-year returns. It’s not much of a reach to suggest that fixation does more harm than good. It drives action. People look at one year’s return and expect it to continue. So money flows into stocks after a great year, and out after a terrible year. This need to act is why diversification is so important. Bonds become a psychological buffer for the short term craziness in the markets. And then there’s valuation. There are times when stocks become so expensive in the short term that it negates much of that long-term potential. The difficulty is in trying to time these periods because a high valuation doesn’t guarantee immediate poor returns – high priced stocks can always go higher in the short term – and valuation tools, like the CAPE ratio , don’t help the cause. Prior to the dot-com bubble, Siegel was a devout index fund fan: I was wedded to cap-weighted at the same time I said tech was crazy. And I didn’t know how to reconcile those two. Your typical index fund is market-cap weighted , which makes it extremely efficient. There’s just one big flaw. If a few stocks become wildly inefficiently priced (like internet stocks during the dot-com bubble) there’s no way to sell those stocks in a cap-weighted index. Rather, the cap-weighted index fund continues to buy more as the market cap rises. So Siegel’s solution was to change the weighting – essentially creating fundamentally-weighted index funds based on objective earnings data and opening the door for the rise of smart beta. Now, the fundamental weighting method isn’t perfect either. It won’t magically prevent a losing year. But if you’re only focused on one-year returns, it won’t matter anyway, you’ll be too busy acting before you ever see the benefits.