Investors may still be able to profit from the 2008 financial crisis, according to Dan Ivascyn, a top-performing bond manager at Pacific Investment Management Co.
Money can be made from the “prolonged and significant dislocation” in bonds backed by assets issued before markets collapsed, Mr. Ivascyn, one of Pimco's six deputy chief investment officers, said Monday in a Q&A article in the firm's Secular Outlook Series publication. Opportunities also may be found in new regulations and “bad experiences” constraining financial institutions, including Wall Street banks, he said.
Those firms in the past “committed a lot of capital to arbitrage away market mispricings and localized market volatility,” said Mr. Ivascyn, who was named U.S. fixed-income fund manager of the year for 2013 by Morningstar Inc. “These pricing displacements tend to linger a bit longer than previously.”
The biggest bond dealers retrenched after losses during the crisis that topped $2 trillion at the world's biggest financial companies, sparking new restrictions such as increased capital requirements and the Volcker Rule that limits banks' ability to make bets with their own money.
The trading void created is presenting opportunities across volatility, interest-rate and credit markets, Mr. Ivascyn said. Investments that Pimco likes during a period of “tight” yield premiums include U.S. home-loan bonds without government backing, he said.
With fewer assets getting packaged into bonds receiving credit grades, there's also “significant opportunities for investors that are not constrained by ratings,” Mr. Ivascyn said.
The state of European banks, which entered the crisis more indebted and now face slower economic growth, also is good for investors, Mr. Ivascyn said. While the lenders have been successful at raising capital, they will probably dispose of about $1 trillion in “non-core assets,” including residential and commercial real estate and corporate securities.
The $36 billion Pimco Income Fund (PIMIX), managed by Mr. Ivascyn and Alfred Murata, has returned 6.1% this year to beat 98% of peers, according to data compiled by Bloomberg. Its average annual gains of 15% of the past five years topped 99% of competitors.