Bond giant Pacific Investment Management Co. LLC is taking the next step to build itself into an alternatives investments powerhouse by preparing to launch its first managed-futures mutual fund.
On Friday, Pimco filed a preliminary prospectus with the Securities and Exchange Commission, the first step in registering a new mutual fund, for the Pimco Trends Managed Futures Fund. The fund will invest long and short in a variety of asset classes, including interest rates, commodities and currencies.
The managed-futures category, a longtime financial adviser favorite, has taken a bit of a popularity hit recently because of the category's poor long-term performance.
For the first time in three years, advisers didn't rank managed futures as the top alternatives category to which they plan to add, according to Morningstar Inc.'s and Barron's 2012 Alternative Investment Survey of U.S. Institutions and Financial Advisors.
“People tend to chase performance, and the performance of managed futures funds has been poor,” said Phil Guziec, an alternatives mutual fund analyst at Morningstar.
“People tend to buy the insurance policy when the house is on fire,” he said. “Things are calm right now.”
The managed-futures category at Morningstar has three-year annualized returns of -3.87%. The S&P 500 has annualized returns of 17% over the same time period.
Still, not all managed-futures funds have been dogged by poor performance lately, and there is an opportunity to create alpha within the strategies.
For example, the
Credit Suisse Managed Futures Strategy Fund (CSAAX), the Natixis ASG Managed Futures Strategy Fund (ASFYX) and the 361 Managed Futures Strategy (AMFZX) are up 7%, 5% and 4%, respectively, year-to-date.
Pimco has the added bonus of being able to leverage its fixed-income expertise if it chooses to manage the short-term-debt portion of the fund to boost gains.
Managed-futures funds primarily use derivatives, such as swaps or futures contracts, to make bets on the direction of specific asset classes. Those contracts can be bought relatively cheaply, leaving the majority of the fund's assets in cashlike holdings as collateral.
“It would make a lot of sense to use their skill set to manage the collateral,” Mr. Guziec said.
Pimco has quietly been upping its
alternatives presence over the past few years. Its alternative mutual funds have grown to more than $100 billion in assets, from $28 billion in 2008, as investors have increasingly looked for something different than traditional stocks and bonds.
The search for less-correlated assets has hit home at Pimco recently as rising interest rates have led investors to flee traditional fixed income for the first time in more than five years.
Since May, when rates rose to 2.5%, from 1.6%, Pimco's flagship Total Return Fund, managed by Bill Gross, has seen $18.4 billion of outflows, compared with $21 billion of inflows over the previous 16 months, according to Morningstar.
The company's alternatives have held up well, though, specifically the Pimco Unconstrained Bond Fund (PUBAX), which has seen inflows of about $4.3 billion since May, according to Lipper Inc.
The Unconstrained Bond Fund has benefited from its flexibility, which should help it better dodge the pain of rising rates.
The proposed managed-futures fund, like other such offerings, would give Pimco another hedge against rising rates.
“These are all cash-plus strategies,” Mr. Guziec said. “To the extent that cash rates go up, that should help the returns of these strategies.”
Mike Reid, a spokesman for Pimco, didn't return calls seeking comment.
