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

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. Online Graphing
Make a graph

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.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

INTV

Why some retirement plan advisers think Fidelity is invading their turf

InvestmentNews editor Frederick P. Gabriel Jr. and reporter Greg Iacurci talk about this week's cover story that looks at whether Fidelity Investments is stepping on the toes of retirement plan advisers.

Latest news & opinion

Speculation mounts on whether others will follow UBS' latest move to prevent brokers from leaving

UBS brokers must sign a 12-month non-solicit agreement if they want their 2017 bonuses.

Maryland jumps into fiduciary fray with legislation requiring brokers to act in best interests of clients

Legislation requires brokers to act in the best interests of clients.

8 apps advisers love for getting stuff done

Smartphone apps that advisers are using in 2018 to run their business more efficiently.

Galvin's DOL fiduciary rule enforcement triggers industry plea for court decision

Plaintiffs warned the Fifth Circuit that Massachusetts' move against Scottrade signaled that the partially implemented regulation can raise costs for financial firms.

Social Security underpaid 82% of dually entitled widows and widowers

Agency failed to tell survivors that they could switch to a higher retirement benefit later.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print