HEAD-TO-HEAD: Blackrock vs Pimco

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Mara Dobrescu, Morningstar

FSA compares two large euro bond funds with contrasting investment strategies: the Blackrock GF Euro Bond Fund and the Pimco GIS Euro Bond Fund.

Introduction

Bond fund managers have faced a challenging investment environment in the decade since the global financial crisis. Quantitative easing policies by the US Federal Reserve and other major central banks created liquidity that was channelled into equity markets.  But the core of the Fed’s QE policy was asset purchases – government and other high quality bonds – which drove long-term yields to low, unattractive levels.

Meanwhile official short-term interest rates were also suppressed to help spur economic recovery.

As a result, fixed income managers with a wide range of mandates, from asset-liability matching pension funds and insurance companies, to high income and total return funds with specific credit restrictions struggled for so-called “incremental yield”.

More recently, there has been a standoff with the Fed. Interest rate hikes last year and hawkish comments by its chairman in the final quarter sent all segments of the global bond markets down amid fears of recession.

A more accommodative stance at the start of 2019 was a catalyst for a broad-based recovery in bond prices. But the Fed now seems to be on pause, making the 2019 interest rate picture unclear.

Blackrock and Pimco enjoy strong reputations as fixed income fund managers. They both have large, flagship euro bond funds. The strategies they have adopted to navigate the complex landscape are distinctive, but have significant differences.

FSA asked Mara Dobrescu, director of fixed income strategies and manager research at Morningstar, to compare the two giant euro bond funds.

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