PIMCO's global play for income and stability

In a world of rising interest rates, shifting macroeconomic dynamics and heightened market fragmentation, fixed income is firmly back on the radar. But with so many sectors and geographies to navigate, how can investors secure reliable income while also protecting capital?

According to Esteban Burbano, Managing Director and Fixed Income Strategist at PIMCO, that’s exactly the problem the PIMCO Income Fund was designed to solve.

“Our income strategy is a fixed income portfolio with a global, multi-sector flexible approach,” Burbano says.

“It focuses on delivering a consistent income stream and capital preservation through diversified exposure across the entire bond market.”

The fund adopts a benchmark-agnostic approach, enabling the team to tactically adjust exposures across geographies, sectors, and risk factors in real-time. The goal is to provide investors with steady income and strong risk adjusted returns, predominantly via income generation, without being anchored to a traditional index.

With a current distribution yield of around 6%, the fund offers a compelling starting point for long-term investors, particularly for income-focused investors. Importantly, its flexible nature means it can act as a core fixed income allocation, adapting as market conditions evolve.

Burbano notes that in today’s environment, where interest rates have normalised and economies are diverging in their growth and inflation outlooks, the ability to move across regions and asset types is more valuable than ever.

In the Fund in Focus above, Burbano outlines the fund’s core approach, current positioning, and why securitised assets are a key part of the portfolio.

INTERVIEW SUMMARY

A flexible approach to income and preservation

The PIMCO Income Fund is designed for investors who need steady income and capital preservation. The Fund takes a broad-based approach to investing in income-generating bonds, leveraging PIMCO’s vast analytical capabilities and sector expertise to help temper the risks of income investing.

“The focus here is on a portfolio that generates consistent income, but also has an eye towards capital preservation,” Burbano says.

This is achieved by taking a “benchmark agnostic” approach. Rather than sticking to a predefined index, the fund is highly tactical, adjusting exposure to sectors, geographies, and risk factors daily.

“It’s very flexible, it’s very tactical, which means that we are adjusting our exposures to the different markets on a daily basis", says Burbano.

Why liquidity matters

Given the complexity of global fixed income markets, Burbano highlights the importance of liquidity.

“This strategy is offered on commingled vehicles that are accessed on a daily basis. So for us it's very important to look at liquidity across the entire portfolio and in each individual security.”

This liquidity focus supports the team’s ability to make regular adjustments, whether to interest rate exposure, credit markets or currencies, ensuring the fund remains nimble and responsive to changing market conditions.

Securitised assets: a core strength

One area of strategic preference for the PIMCO Income Fund is securitised credit. Unlike corporate bonds, which rely on a single issuer, securitised assets are backed by pools of loans, like mortgages, auto loans, or student debt.

“Historically, we've had a bias towards securitised assets,” Burbano explains.

“These are bonds that have a couple of benefits. Number one is your investment is backed by a pool of assets so they are less susceptible to idiosyncratic risks given the level of diversification in these pools… Secondly, we invest in senior tranches, which helps shield the strategy from credit losses attributed to defaults, which are absorbed by junior investors.”

Positioning for today’s rate environment

The fund’s flexible nature enables it to adapt to changing macroeconomic conditions. During the post-COVID years of ultra-low rates, the fund had minimal duration exposure. But that’s now changed.

“Fast forward to the current environment… yields are much more elevated,” says Burbano.

“The portfolio has increased exposure to interest rates, to the point where we are perhaps at the highest level that we've been in many, many years.”

While most of that exposure is in the US, the team also sees opportunities in other developed markets, including the UK and Australia.

“There’s going to be multiple different speeds at which interest rate levels normalise around the world,” he adds, making relative value strategies across regions more attractive.

What to expect from returns

For investors seeking income with stability, the PIMCO Income Fund offers a solid starting yield - currently around 6%. According to Burbano, that yield is more than just an attractive figure.

“The yield of the portfolio is our best guess as to what to expect” over the next 3–5 years from a return standpoint.

“On top of that, we hope to add more return, more alpha… given our flexibility and active management", he adds.

How investors can use the fund

Burbano believes the fund can play a central role in a diversified fixed income portfolio, regardless of investor goals.

“It gives you access to the entire market. It gives you the flexibility to manage interest rate and credit risk, and it helps you generate income,” he says.

Even investors who don’t require income can benefit from the consistent cash flows.

“The fact that the strategy generates that consistent income stream means that it’s building attractive returns over time.”

Managed Fund

PIMCO Income Fund

Global Fixed Income

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