Morningstar has reaffirmed its ‘gold’ rating of Pimco’s Australian Bond Fund, citing “the rigour behind each investment decision” that its “impressive team” makes.
The fund has more flexibility than most index-aware strategies. It can invest up to 30 per cent offshore and take currency bets.
“This isn’t riskless and can cause it to deviate from the pack, but we believe that this team can pull these levers effectively,” Morningstar says.
Pimco has been through difficult times in recent years. Its co-founder Bill Gross left the company in late 2014 and then sued the company for breach of contract.
The company suffered significant outflows after Gross left and did not return to net inflow until this year.
Morningstar says the Australian business emerged relatively unscathed from the “distracting upheaval” at Pimco’s Newport Beach head office.
Pimco’s local investment team is headed by Robert Mead, who runs domestic strategies and contributes to Asian portfolios. Mead joined Pimco in 2003.
He is supported by Adam Bowe and Aaditya Thakur, who have steadily taken over more control of the fund.
The Australian Bond Fund invests in cash and government, semi-government and corporate debt securities. Almost all of its investments are investment grade.
The fund’s interest rate duration has generally stayed within two years of the benchmark
According to Morningstar, the fund’s long-term record “far exceeds” most rivals, while short and medium-term returns have been close to index.
Over the 10 years to the end of July the fund produced an average return of 6.9 per cent a year, compared with a return of 6.2 per cent a year for the Bloomberg AusBond Composite Index over the same period.
Over the past three years the fund has produced an average return of 4.2 per cent a year, which matched the index return.
The fund’s conservative stance stood it in good stead during the financial crisis, when it produced strong outperformance in 2009 and 2010.
“Pimco’s competitive strengths endure. Its Australian bond portfolio is an excellent core defensive allocation,” Morningstar says.