HEAD-TO-HEAD: Blackrock vs Pimco

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Investment approach

Both funds are run by experienced managers who are supported by teams of dedicated portfolio managers and backed by the resources of their global network of analysts and specialists.

They each have access to a broad investible universe of fixed income securities to support their aim of maximising total returns while preserving capital.

“However, their investment strategies are notably different,” said Dobrescu.

Although it sometimes take directional bets, the Blackrock fund focuses on “identifying uncorrelated relative value opportunities”, underweighting and overweighting matching pairs of individual bonds, and reversing their positions in the future with the intention of turning a profit.

“At any time, the fund has 40 to 60 relative value trades in place, and it is likely that many of those ‘subsets’ will be marked-to-market at a profit,” said Dobrescu.

In contrast, the Pimco fund is more overtly directional, taking firm views about duration, credit, sectors, countries and market segments.

“It also takes more latitude about its benchmark, and for instance, has exploited its firm-wide expertise in emerging markets to take long positions in local currency debt such as the Russian rouble and Mexican peso against a short basket of lower yielding Asian currencies,” according to Dobrescu.

However, those positions are “a small component of the risk budget” and would not comprise more than 10% of the portfolio.

The fund also makes extensive use of derivatives as a way of gaining duration exposure, and for making two-direction trades on developed market sovereign credit, interest rate direction and yield curve shifts.

It prefers to gain extra yield from securitised debt rather than high yield corporate bonds. Last year, it lifted its weighting of securitised debt to 14% from 11%, in particular, raising its exposure to Danish mortgage bonds.

Source: Morningstar; FE Analytics (US dollars to 28 February 2019)

Bond Credit Quality (31 January 2019)

Source: FE Analytics

Bond Maturity Profile (31 January 2019)

Source: Morningstar

Bond Coupon Range (31 January 2019)

Source: Morningtsar

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