Jeff Benjamin

Investment Insights: The Blogblog

Jeff Benjamin breaks down the game for advisers and clients.

Pimco drama proves no stock is an island

How an Allianz decline could ripple across the markets

Mar 24, 2014 @ 11:29 am

By Jeff Benjamin

pimco, allianz, stocks
+ Zoom
Pimco's Bill Gross (Bloomberg News)

Think the unfolding drama at Pimco can't affect your clients' portfolios? Think again.

In the world of portfolio crash-testing analysis, no company is an island. In other words, even if you're not directly exposed to funds managed by Pacific Investment Management Co., you could feel the pinch if the troubles at Pimco start to impact its parent company, Allianz SE.

Pimco, which manages nearly $2 trillion, represents 30% of Allianz revenues. And, according to portfolio crash-testing analysis, an 11% drop in Allianz's stock could pull down the S&P 500 Index by 5.8%.

If Allianz shares fell by 22%, the S&P could by drop by more than 13%.

The Barclays Aggregate Bond Index, meanwhile, would be expected to rise by 0.3% on an 11% Allianz drop and go up 1.9% on a 22% Allianz drop.

In the world of quantitative portfolio crash testing, each security has a set of betas to unique factors such as market variable, style and growth variables, and liquidity.

Daniel Satchkov, president of RiXtrema Inc., explains that Allianz can represent a custom variable in the equation and any shocks to that variable can be calculated to forecast broader market effects.

Last week when Morningstar lowered its stewardship grade for Pimco in light the highly published management turmoil, Mr. Satchkov was able to easily calculate some broader market scenarios.

“We're looking at a situation at Pimco where if it's not too drastic there could be no major impact to the markets, but what if Morningstar really saw something inside the company that has the potential to degenerate into a full blown explosion?” he said. “If that's the case, we can easily conclude that Allianz stock price would suffer, and we can also calculate what will happen to different portfolios if that happens.”

Thus, depending on your outlook for what appears to increased internal strife at Pimco, there might be some increased downside risk in the making.


What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video


Beyond coding: Behind the scenes of Fuse 2017

Fuse is a one-of-a-kind event where developers from various fintech firms come together and work towards a common goal. Although the nights are long, a ton of innovation comes out of the event, as everyone has a bit of fun along the way.

Video Spotlight

Are Your Clients Prepared For Market Downturns?

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

HighTower faces pressure to let investors cash out

After an IPO planned for last year didn't happen, the company could opt to satisfy its backers with a sale.

Envestnet to buy FolioDynamix

The deal, which is expected to close in the first quarter of 2018, will bring the total assets Envestnet works with to almost $2 trillion.

Jerry Schlichter's fee lawsuits have left an indelible mark on the 401(k) industry

After a decade of litigation, fees are lower and retirement plans are more transparent. But have the lawsuits gone too far?

10 best financial adviser jokes

How many financial advisers does it take to screw in a lightbulb?

With margins crashing, broker-dealers look to merge: report

Increased regulation is straining profit margins among broker-dealers, sending many of them into the arms of their bigger brethren.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print