PIMCO’s Dan Ivascyn has pounced on diminishing market expectations for US inflation to bolster positions across his blockbuster income-focused funds.
The Citywire AA-rated manager said the addition of Treasury Inflation-Protection Securities (TIPS) was among his top defensive plays in his $11.2 billion PIMCO GIS Income and its US-domiciled equivalent.
In an investment update, Ivascyn, who is group CIO for the US-based asset manager, said the market had underappreciated the potential for a recovery in US inflation.
‘Areas where we have some defensive assets today would include the US government bond market. We fairly recently added to a US Treasury position as rates began to rise this year.
‘Another higher quality defensive position we have, which is more a contrarian view, is in US Treasury Inflation-Protected Securities,’ Ivascyn said.
TIPS had not historically been a part of either the US or Dublin-domiciled funds, but a spokesperson for PIMCO said this was changed towards to the end of last year due to a number of factors.
This saw 2.9% exposure added in October 2014 to the GIS Income fund, which has since been reduced to 2.7%, while the exposure in the Income fund was initiated in the same month at 3% and currently accounts for 3.8% of the total positioning.
‘As inflation expectations came down in late 2014 – driven primarily by the collapse in energy prices – we saw a tactical opportunity to add them to the portfolio,’ the spokesperson said.
‘They have been a modest, around 3-4%, portion of each portfolio. We continue to believe that US inflation will pick up over the medium term and thus continue to hold our TIPS positions.’
Elsewhere, Ivascyn has continued to hold significant exposure to mortgage-related investments across his portfolios. ‘These are primarily the non-government guaranteed investments. Their profile has changed a lot and today they are much more stable investments.
‘This is following years of home price growth, employment growth and many of the borrowers on these properties have been there for almost a decade. Also many of these loans have been restructured, at least once and if not on many occasions.’
The PIMCO GIS Income fund has returned 18.9% in the 35 months since launch to the end of September 2015. This compares with a rise of 4.9% by its Citywire-assigned benchmark, the Barclays Global Aggregate USD TR, over the same period.