HEAD-TO-HEAD: Pimco vs Robeco

123456

“There are a lot of similarities between the two funds,” Faassen said. “The strategies are rather conservative as they focus on the higher-rated bonds within the high yield segment.”

The Pimco fund, for instance, adopts the Bank of America Merrill Lynch BB-B Rated Developed Markets High Yield Constrained Index, which hardly invests in any emerging markets, or bonds that are rated CCC or below.

The allocation into CCC or lower-rated bonds is under 5% most of the time, he added. The benchmark has about 800 holdings but the fund only owns about 440 bonds.

The Robeco fund, meanwhile, uses a benchmark that excludes the financial sector: the Barclays US Corporate High Yield & Pan European High Yield ex Financials 2.5% Issuer Cap Index. Given the fund’s smaller asset size, the portfolio holds about 150 issuers.

“The team thinks it’s hard to [value] the political risks [to financials] from bottom up analysis, but it can still have an exposure to financial sector issuance of up to 5% when the manager sees the opportunity.”

An issuer cap of 2.5% is meant to avoid concentration risk.

“The Robeco team also has a preference for higher-rated names, such as the BB-rated segment, as the manager believes they have a more favourable risk-reward ratio than the CCC-graded distressed names.”

Rating Allocation

Source: Fund factsheets, Morningstar

“For both funds, the bottom-up credit research is the main performance driver. There’s also overlay on macroeconomic factors, for instance, applying top down analysis to] regional allocation.”

The funds both focus on valuation when assessing high yield bond investments, he added.

The Pimco fund usually has 50-70% of assets invested in core high-yield holdings with a low likelihood of default, with another 25-35% in tactical holdings and 5-15% to capture opportunities arising from significant price movements.

A key differentiator is the Pimco fund has a bias toward the US as opposed to Robeco’s higher allocations to Europe.

“The Robeco team has been overweight Europe because they believe the US market has lower quality [issuers] than the European markets and the latter can offer better risk/rewards.”

For the Pimco fund, Faassen said the manager added some European financial sector exposure in late 2016 and early this year. “But the exposure was brought down later, as they see valuations rising and there are less opportunities. Instead they see more opportunities in the US because the market is bigger and more liquid.”

Regional allocation, as of June 30

Source: Fund factsheets, Morningstar

Another point to note is the price sensitivity to interest rates. Both funds have a bias toward higher quality bonds, which could make their price more interest rate-sensitive than some peers that focus on lower-rated bonds, he added.

Robeco’s duration is in line with the benchmark, he noted, as it doesn’t take active duration bets.

As for the Pimco fund, “there’s more leeway for the manager to have a lower duration than the benchmark. They tend to be more cautious on duration than Robeco’s team, and are also more selective on the long-dated bonds given the [higher] interest rate sensitivity.”

As a result, Pimco’s fund has about a 0.5 year shorter duration than its benchmark.

123456