Throughout the summer, we’ve seen central banks from developed markets worldwide begin to cut interest rates. While this bodes well for the individual countries, another market concern may be on the horizon.
According to recent insights from PIMCO, investors should remain wary of global dispersion. PIMCO’s research notes that while countries are cutting rates, they are doing so on “widely varying schedules.” In fact, the U.S. Federal Reserve has yet to begin cutting rates, and the Bank of Japan just raised rates in July.
These desynchronized rate cuts come as equity markets experience a good deal of uncertainty. With equities getting rocked after weaker-than-expected jobs data in July, PIMCO highlights concerns that a labor straight could lead to aggressive rate cuts from the Fed.
“The recent market swings also serve as a reminder of the hedging properties of bonds, which tend to shine in these conditions,” PIMCO added. “The diversification offered by an actively managed global bond allocation can serve as broad-based ballast, generating the potential for attractive income and capital appreciation, particularly in volatile times. Think of a bond fund allocation as an attractive option to help keep portfolios cool and comfortable on a hot summer day.”
The Active PIMCO Strategy
The PIMCO Multisector Bond Active Exchange-Traded Fund (PYLD) could be a valuable vehicle ahead of potential economic risk. PYLD is a versatile, actively managed bond ETF that can provide both yield and capital appreciation.
Looking at asset maturity, PYLD primarily holds bonds with a duration between 3-10 years. This can help the fund avoid the reinvestment risk from short-duration bonds and broader interest rate risks from long-duration bond strategies.
By utilizing PYLD, investors can harness PIMCO’s extensive bond experience, along with a good variety of spread sectors. Through a diversified bond portfolio, PYLD provides robust fixed income exposure and the usual de-risking benefits of active management.
While the fund primarily holds country exposure to the United States, roughly 10% of the fund holds assets tied to international markets. These international markets include the United Kingdom, France, and Brazil, among others. This selection of global bonds helps PYLD mitigate risk from uneasiness in the U.S. market.
The data behind PYLD helps illuminate why PIMCO’s strategy resonates well with investors. As of August 21st, 2024, PYLD has a 30-day SEC yield of 5.6%. Currently, the fund holds over $1.3 billion in assets under management.
For more news, information, and analysis, visit VettaFi | ETF Trends.