Photograph of Daniel J. Ivascyn, Group Chief Investment Officer

Dan Ivascyn: For many of you that have longer term capital, that can be patient and weather volatility, it's a great environment and it's going to be a great environment to put capital to work. We are seeing value, particularly in the new issue markets of the credit related sectors, but some of the easy money has already been made, particularly if you're looking at legacy instruments or more of a beta focus across these areas of the market. The private markets have yet to come to grip with the shock that we have been facing. When you look at quarter-end valuations, when you look at other levered credit vehicles out there in the marketplace, the marks do not yet reflect the fundamental economic deterioration. We just begun the default cycle, the re-pricing cycle, in that area of the market. So, we think it's one of the highest conviction opportunities out there, but it's critically important that investors are patient, because the size of the problem is going to create opportunities for many months, and even many years to come.  You can take advantage of what's going to be forced selling, not necessarily disorderly selling, but forced selling, or motivated selling, from a lot of market participants that are regulated, based on rating. Even at PIMCO, a lot of our client mandates within their guidelines, have various rules around ratings requirements. So, again, I think this is a tremendous opportunity and why we're seeing so much interest from our clients for credit-related strategies that aren't just looking to dive in and take advantage of the dislocation we've witnessed over the course of the last several months. But more patient capital, that could be deployed on an opportunistic basis, to be the liquidity provider for what's ultimately going to be an elongated cycle with, unfortunately for the markets, more broadly, a decent amount of forced selling. Don't make it more complicated than it needs to be. Don't take too much volatility if you don't need to. And I think when you look at the opportunity set broadly across the credit segments of the fixed-income universe, especially if you can get into the slightly less liquid segments of the market. We think you can earn equity-like returns or even exceed equity-like returns. You are going to have forced sellers that can't deal with the complexity, that can't deal with the rating but in exchange for taking on that type of risk, you have a profile with considerable upside but potential meaningful downside protection if we happen to be wrong. And after the more recent rally we've seen in developed market equities, particularly in the United States in the growth-related sectors, we do think that some of these opportunities stack up extremely well versus their public equity alternatives.

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Disclosure

IMPORTANT NOTICE

Please note that the following contains the opinions of the manager as of the date noted, and may not have been updated to reflect real time market developments. All opinions are subject to change without notice.

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. Equities may decline in value due to both real and perceived general market, economic and industry conditions. 

Private credit involves an investment in non-publically traded securities which may be subject to illiquidity risk.  Portfolios that invest in private credit may be leveraged and may engage in speculative investment practices that increase the risk of investment loss.

The credit quality of a particular security or group of securities does not ensure the stability or safety of an overall portfolio. The quality ratings of individual issues/issuers are provided to indicate the credit-worthiness of such issues/issuer and generally range from AAA, Aaa, or AAA (highest) to D, C, or D (lowest) for S&P, Moody’s, and Fitch respectively.

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 suitable 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.

Forecasts, estimates and certain information contained herein are based on proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fees, and/or other costs. In addition, references to future results should not be construed as an estimate or promise of results that a client portfolio may achieve.

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