Looking ahead, 2015 may not end up being the year of PIMCO as a whole, but there a few standout funds that investors are wise to consider for their portfolios. The next year will definitely be a pivotal one for the beleaguered mutual funds company but quite possibly a year with a welcome shift in the positive direction.
With the sensational exit of Bill Gross out of view, PIMCO can now get back to what it can do best, which is to manage fixed income portfolios, even without the bond king at the helm.
Although PIMCO has plenty of skillful and experienced portfolio managers, the first year in three decades without Mr. Gross may not be its biggest challenge. Why? Because 2015 may also be the first year in the same period of time that the bond market ends its bull market run.
The U.S. economy is arguably strong enough now for the Federal Reserve to finally begin raising interest rates, which is sure to place downside pressure on most bond funds in the coming year.
With that in mind, here are the best PIMCO funds for 2015.
Best PIMCO Funds for 2015 — PIMCO Income A (PONAX)
PIMCO Income (PONAX) has two primary reasons that make 2015 a promising year for the fund: No. 1 — It’s a multi-sector bond fund. No. 2 — It was not managed by Bill Gross.
With interest rates almost sure to rise, especially in the second half of the year, 2015 looks to be a transitional time for bonds. This is the type of environment where the go-anywhere style of a multi-sector bond fund can be a strong asset.
One could make a sensible case that short-term bonds, with their low interest rate sensitivity, could outperform bond funds with longer average maturities, and that bond funds with higher credit quality may do better in 2015 than those with lower credit quality (i.e. high-yield bond funds).
But what if 2015 is not significantly different than the past 3 years, where the Fed keeps pushing the inevitable rise of interest rates further into the future? And what if you want yields much higher than 1%? You’ll want a fund like PIMCO Income, which is an actively-managed fund that has a diversified mix bond types.
Lead manager Daniel J. Ivascyn has been at the helm of PIMCO Income since inception in March 2007. Therefore the fund’s performance ranks for the 1-year, 3-year and 5-year returns, all of which are in the top 10%, are his and the able PIMCO analyst team’s to claim. Year-to-date through December 19, PONAX led 92% of multi-sector bond funds with a solid gain of 6.5%.
PONAX has a reasonable expense ratio of 0.85% and has a 3.75% front load. But there are other share classes offered where investors may qualify to buy shares without a load.
Best PIMCO Funds for 2015: PIMCO StocksPLUS A (PSPAX)
PIMCO’s strength in fixed income extends to risk management funds like PIMCO StocksPLUS (PSPAX).
The StocksPLUS® strategy was pioneered by PIMCO in 1986 and is intended to capitalize on PIMCO’s core strengths of investment analysis and risk management by accessing the fund company’s global resources.
PSPAX, according to PIMCO, aims to combine “passive exposure to the S&P 500 with active bond management in an effort to outperform the index.” The fund does this by using futures and swaps to mimic the S&P 500, and the cash left over after collateral is posted is invested in bonds.
This enhanced index strategy has been mostly successful as the fund has outperformed the S&P 500 in four of the past five years.
With regard to future performance in 2015 and beyond, there are a few caveats for investors to consider for PIMCO StocksPLUS: One possible drawback for the fund is that it was once managed by Mohamed El-Erian and Marc Seidner in January 2014, then by Bill Gross until his exit in September. Although the new manager, Sudi Mariappa, has experience in managing fixed income and global equity portoflios, the track record at PIMCO is short.
The other caveat is that the enhanced index strategy doesn’t promise to outperform in a down market, as 2008 and 2001 proved with this fund.
With all that said, PIMCO StocksPLUS can be a standout in 2015 if there are no big downside surprises, and PIMCO’s history of selecting outstanding fixed income managers remains in tact.
PSPAX has a low expense ratio of 0.90% and a 3.75% front load. But there are other share classes offered where investors may qualify to buy shares without a load.
Best PIMCO Funds for 2015: PIMCO Commodity Real Return Strategy Fund (PCRAX)
If you’re looking to go long on the beaten-down commodities asset class, PIMCO Commodity Real Return Strategy (PCRAX) can be an outstanding choice for 2015.
PCRAX uses commodity index-linked derivative instruments backed by a portfolio of inflation-indexed bonds and other fixed income securities. With oil and gold beaten down heavily in 2014, and the broad basket commodities mutual fund category finishing its fourth consecutive year of negative returns, PIMCO Commodity Real Return Strategy is poised to lead in the next year and beyond.
Although PCRAX is another PIMCO fund with an El-Erian/Gross history, the new manager, Mihir P. Worah is a 13-year PIMCO veteran with a rich history of management under his belt.
PCRAX has a low expense ratio of 1.19% and has a 5.50% front load and a minimum initial investment of $1,000. But like most other PIMCO funds there are other share classes offered where investors may qualify to buy shares without a load.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.
More From InvestorPlace
- 10 Best S&P 500 Stocks of 2014
- 7 Biggest Investment Opportunities of 2015
- 3 Best Vanguard Funds for 2015