Emerging-markets stocks, alternative investments: You sure this is Pimco?

Bond giant reinventing itself as it seeks out higher returns; launches emerging market stock funds, eyeing alternative investments

Apr 13, 2011 @ 8:36 am

Pacific Investment Management Co. opened its first mutual funds under Maria Gordon, the Goldman Sachs Group Inc. portfolio manager hired last year to start an emerging-markets stock group.

Pimco EqS Emerging Markets, a stock fund, is managed by Gordon, while Pimco Emerging Multi-Asset, led by Curtis Mewbourne, will invest in equities, bonds and currencies. The Newport Beach, California-based firm is considering strategies including global growth, dividends and alternative investments such as absolute return funds, Neel Kashkari, head of new investment initiatives, said in an interview.

Pimco, which has been synonymous with bond investing since it was co-founded by Bill Gross four decades ago, said in 2009 it would push into equities, and hired Kashkari, a former U.S. Treasury official, to direct the effort. The emerging-markets stock team will benefit from Pimco's research on the fixed- income side, Kashkari said.

“We've been a leader in emerging-markets fixed-income, managing more than $200 billion in assets,” Kashkari said. “This is a slam-dunk for us, strategically.”

Pimco's global focus comes against the backdrop of the firm's “new normal” philosophy, adopted in May 2009 to describe an era of lower returns, heightened government regulation, a diminishing clout for the U.S. in the world economy and a bigger role for developing nations. Pimco, a unit of Munich-based insurer Allianz SE, manages about $1.2 trillion in assets, with more than 90 percent in bonds.

Russia, China

Pimco EqS Emerging Markets will combine stockpicking with Pimco's research on markets and currencies, which tend to dominate developing-market returns, Gordon said in an interview from London. Russia and China stand out among the countries with the most compelling investment opportunities, she said.

The fund will also use a technique called tail-risk hedging to protect investors from losses during times of extreme market volatility, Gordon said.

“We want to avoid the big black hole of returns in the emerging markets,” Gordon said. “Tail-risk management will help in capital preservation during periods of extreme market conditions.”

Role of Dollar

The emerging-market multi-asset fund will use a combination of Pimco's own funds, exchange-traded funds and individual securities, Mewbourne, a managing director at Pimco, said in an interview. Helping Mewbourne will be Gordon, who will oversee equities, and Michael Gomez and Ramin Toloui, who are co-heads of Pimco's emerging-markets bond team.

Emerging markets are growing much faster than their developed counterparts, and that growth is apparent beyond the equity markets, Mewbourne said.

“The strength that we've seen in the emerging-market currencies versus the weakness in the dollar is a trend we expect to continue,” Mewbourne said.

Last year, Pimco opened its first actively managed stock fund, Pimco EqS Pathfinder, after hiring Anne Gudefin and Charles Lahr from Franklin Resources Inc. That fund has gathered about $1.2 billion in assets since it opened last year. It has advanced 8.2 percent since its inception on April 14, compared with the 11.7 percent increase in the MSCI World Index, according to data compiled by Bloomberg.

Pimco has hired about 20 investment professionals as it builds its equity unit, including seven analysts and traders added last month in London, New York and Singapore.

Unlike rivals such as BlackRock Inc., which added products through acquisitions, Pimco is expanding by hiring executives and broadening teams.

--Bloomberg News--


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