Viewpoints

Quant’s Next Frontier: Harness New Opportunities in Complex Markets

The next frontier of quant investing – including emerging markets, credit, and volatility assets – offers investors compelling diversification potential. Learn more about why, and how experience and a nuanced understanding of these markets is key in accessing this value.

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Text on screen: PIMCO

Text on screen: PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized.

Text on screen: Nick Granger, Portfolio Manager, Quantitative Analytics

Nick: We've seen a broad move in quant in recent years to embrace markets which are more complex to access, for example assets like emerging markets, credit, as well as various volatility related assets.

Text on screen: Quant strategies generally have tended to fare better in areas where barriers to entry are high

Images on screen: Emerging market countries

Quant strategies have generally fared better in these assets where the barriers to entry are higher, potentially making inefficiencies more prevalent.

In addition, such markets have tended to exhibit diversification properties, either opening up entirely new opportunities or expanding the opportunity set of existing strategies.

Images on screen: PIMCO trade floor

PIMCO has been for decades at the forefront of trading exactly these types of assets. And as quants we're extremely fortunate to be able to make use of PIMCO's capabilities and experience to implement novel quant strategies in these areas.

If we want to build a mortgage strategy, we can sit down with the PIMCO mortgage desk and talk with them about how they

Images on screen: Residential neighborhoods

think through value and risk within their asset class, and build their insights into our systematic strategies.

Quant credit in particular has been a much talked about area recently, but requires a lot of investment in infrastructure to design strategies that work and can be executed efficiently.

It's much more difficult than simply applying what works in equities to corporate bonds. So we’re spending a lot of time with our 80 person credit research team and our credit portfolio management teams,

Text on screen: Quant credit strategies require a highly nuanced understanding of the credit markets

Images on screen: Office exteriors

to understand the nuances of these markets, and design strategies that work both in theory and in practice.

For example, shorting cash bonds is not as simple as shorting cash equities. And these differences need to be accounted for in strategy design. Also, companies may issue dozens of bonds versus single issues of common stock. So it's important to be able to differentiate between issuances and account for the important differences that may be hard to spot on the surface. This is one huge opportunity for fundamental investors to collaborate with quantitative investors with mutual benefits.

Text on screen: For more insights and information, visit pimco.com

Text on screen: PIMCO

Disclosure


All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market’s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee, there is no assurance that private guarantors will meet their obligations. Corporate debt securities are subject to the risk of the issuer’s inability to meet principal and interest payments on the obligation and may also be subject to price volatility due to factors such as interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity. Diversification does not ensure against loss.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517, 11 Baker Street, London W1U 3AH, United Kingdom) is authorised and regulated by the Financial Conduct Authority (FCA) (12 Endeavour Square, London E20 1JN) in the UK. 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The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2, Brandschenkestrasse 41 Zurich 8002, Switzerland). The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Investment Management (Shanghai) Limited Unit 3638-39, Phase II Shanghai IFC, 8 Century Avenue, Pilot Free Trade Zone, Shanghai, 200120, China (Unified social credit code: 91310115MA1K41MU72) is registered with Asset Management Association of China as Private Fund Manager (Registration No. P1071502, Type: Other) | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. 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The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is an independently operated and managed company. The reference number of business license of the company approved by the competent authority is (110) Jin Guan Tou Gu Xin Zi No. 020 . The registered address of the company is 40F., No.68, Sec. 5, Zhongxiao East Rd., Xinyi District, Taipei City 110, Taiwan (R.O.C.), and the telephone number is +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO Latin America Av. 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