Report Release Date: 29 Apr 2010
Analyst: Dario Portioli
Morningstar Opinion
We believe PIMCO GIS High Yield's potential won't change now that it's in new hands.
Starting from Jan. 2010, Andrew Jessop took over full responsibility for this fund. Jessop’s appointment granted the team greater stability--former manager Ray Kennedy stepped down in Apr. 2007, and his successor, Mark Hudoff, left in May 2009. Despite these changes, shareholders should expect the crux of this fund's approach to remain substantially the same. As with all PIMCO strategies, the fund is managed in consideration of the firm’s long-term and cyclical forecasts for the economy and markets. However, investment decisions here are dominated by traditional bottom-up credit analysis, which is supported by PIMCO’s strong 30-person credit team.
The investment universe is mainly represented by larger US companies at the better-quality end of the high-yield sector, which means the fund will typically hold less credit risk than most of its peers. The fund’s conservative approach has also determined a significant exposure in investment-grade securities over time. In particular, at the beginning of 2010, non-high-yield securities accounted for about one third of total assets. According to Jessop, this was partly related to a recent firmwide bet on large financial firm survivors, but he expects this exposure to come down. At his prodding, the firm is also hiring three new analysts with experience covering the smaller companies that permeate the core B rated strata of the high-yield universe and played a minor role here in the past. That doesn't mean the fund will look markedly bolder, as Jessop is also willing to sell the most speculative bonds that look overvalued.
In order to assess this fund’s potential, we believe it is also important to consider Jessop’s strong credentials. He joined the firm after 12 years at Goldman Sachs Asset Management, where he co-led the firm’s high-yield group. His record at Goldman Sachs High Yield is robust: From its 1997 launch until Jessop's May 2009 departure, the fund beat more than 80% of its rivals. It's worth noting that Jessop followed more of a core high-yield approach there, with higher stakes in B and CCC rated bonds compared with this fund. Overall, we think Jessop still needs some time to settle in with his new position and analyst team, but shareholders here can be reasonably optimistic.
The US version of this GIS strategy--PIMCO High Yield-- was launched earlier in 1992 and since then was able to beat the category average over five- and 10-year periods. Despite the fact that the fees for the GIS retail share class might be more competitive given the fund's economies of scale, we think this offering represents a solid choice. Our rating is “Superior.”
*The above returns are in USD terms.
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