For the past 40 years, Bill Gross has transformed PIMCO into a financial powerhouse, with more than $1.3 trillion in assets under management. Of course, a key to success has been his bond investing prowess. Keep in mind that the PIMCO Total Return Fund (MUTF:PTTRX) has about $245.3 billion in assets.
But Gross also has focused on innovation. To this end, he has launched funds that invest in categories like commodities, emerging markets and convertibles.
And Gross is not slowing down. In fact, he recently has put together yet another interesting offering — that is, the PIMCO Credit Absolute Return Fund (MUTF:PDCRX). Basically, the goal is to produce absolute returns. This means that — regardless of the market movements — the fund should produce gains.
Keep in mind that this strategy is fairly uncommon in the mutual fund world. Why? A mutual fund manager is measured against a certain benchmark. Thus, if the index falls 10% but the fund is off 8%, then this actually is a good performance. But the fact is you still lost money!
Instead, the absolute-return approach is more common for the hedge fund world. All in all, wealthy investors and institutions often are more concerned about protecting their wealth, not beating an index.
And yes, this goal also is becoming more attractive to retail investors because of the continued turbulence in the markets.
As for the Credit Absolute Return Fund, it has a broad mandate. The portfolio manager can invest in virtually any type of credit instrument in any market. At the same time, there will be use of futures, swaps and credit default swaps, which can be extremely helpful in hedging a portfolio.
Mark Kiesel is the manager of the Credit Absolute Return Fund. He came on board PIMCO in 1996 and has since demonstrated a strong track record across various assets classes and derivatives strategies. For example, since 2002, he has posted an annual average return of nearly 8% for managing the Investment Grade Corporate Bond fund. During this time, he was fairly skillful in avoiding losses.
Now, the Credit Absolute Return Fund likely will not avoid any losses. This would be extremely hard to pull off, if not impossible. Yet over the long run, there should be steadier returns. You also will get the benefit of downside protection from the short positions.
In other words, for those investors looking for a vehicle that should be able to navigate the wrenching volatility, the Credit Absolute Return Fund does look promising. And in light of the continued problems in Europe — as well as the general slowdown in the global economy — providing some type of portfolio hedge probably is a good idea.
Tom Taulli is the author of various books, including “All About Commodities.” He does not own a position in any of the stocks named here.
