Below, we excerpt from the January issue of our new Bond Fund Intelligence publication, which features the article, "Short Now Big at PIMCO: Talking w/Schneider & Reisz.... This month, we sat down with Jerome Schneider, MD & Head of the Short-Term and Funding Desk, and Paul Reisz, Executive V.P. and Product Manager for Money Market, Enhanced Cash and Income Strategies, at PIMCO. While Total Return has made a lot of headlines over the past year, it's the short-term bond funds and ETFs at PIMCO that could generate a lot of buzz in 2015. (Crane Data recently launched Bond Fund Intelligence to track the bond fund marketplace with a focus on the ultra-short segment -- see our Dec. 23 News "Crane Data Launches Bond Fund Intelligence, Focus on Ultra-Shorts". Contact us if you'd like to see this first "live" issue.)
BFI: How long have you been focused on the ultra-short bond space at PIMCO? Schneider: PIMCO has been predominantly focused on fixed income assets since 1971 and has been a leader in short-term and actively managed strategies. We launched our initial PIMCO Short-Term Fund back in 1987 and focused on 3 things: providing an attractive yield, liquidity, and preserving capital. I joined the firm in 2008 and have been managing our front end and short-term portfolios since that time. We have evolved out of the financial crisis, focusing on creating front end strategy solutions which adapt to changing liquidity needs and focus on capital preservation. We've added several new products over the past 5-6 years, providing solutions to a variety of clientele. We manage about $250B in short-term assets through funds, separate accounts, and more recently, ETFs.
For us, this is not a new pony to ride. This is something that we've done for 30 years, and we've continued to expand our stable of offerings, such as adding the Short Asset Investment Fund, [which takes a] a small step out beyond money markets. We've also been active in ETFs, launching MINT about 5 years ago, and more recently LDUR, our Low Duration ETF, which was launched in January of last year.
Reisz: I started at PIMCO in 2000 and my primary focus has been on our short duration strategies -- from money markets all the way out to our low duration strategy. I've helped build out our suite through product launches, such as our Short Asset Investment Fund, which will have its 3-year anniversary in May. This was designed to step outside of MMFs while seeking to limit NAV volatility. Five years ago we launched MINT and 28 years ago we launched the Short-Term Fund. MINT has really met a need and is one of the largest actively managed fixed income ETFs.
These represent our ultra-short offerings, with 0-1 year duration ranges. Then we have our low duration strategies, which fall within a 1- to 3-year duration band. The LDUR ETF was launched a year ago with the objective of outperforming money markets while striving to maintain liquidity and a stable market value. We've also run the Low Duration Fund since 1987.
BFI: Tell us about the differences between funds. Schneider: What we've come to realize over the years is that there's simply not a one size fits all solution. There's not a panacea that allows people to balance liquidity, credit risk, interest rate risk, all in one, and it's taken the market years, even decades, to realize that. Coming out of the crisis, we realized that not everybody wants to simply earn zero on their money, so we had to find a healthy balance between capital preservation, credit risk, and liquidity risk. What that points to is having a variety of offerings that cater to incremental steps of liquidity needs, balanced with increasing yield and risk that you might be undertaking. Our suite of short duration strategies provides simple incremental steps in terms of how to think about clients' needs and risk appetite.
BFI: What do you buy in the funds? Reisz: Each investor has a customized liquidity profile in terms of cash flow activity and risk tolerance. So in some cases, money markets are a completely appropriate strategy to utilize. When we step out beyond money markets in the Short-Term strategy we have the flexibility to add value. Naturally, the core holdings will be money market securities for liquidity and principal stability. But once you step outside of 2a-7 regulated space, there are a lot of interesting opportunities, since there are securities that you can't purchase in MMFs that you can purchase in the non 2a-7 space.
Sector exposure is much more diversified and some high quality securities may even be more liquid than traditional money market securities, even though the maturity is longer. That is the playing field for Jerome and our team. We are looking for securities across multiple fixed income sectors that have attractive risk-adjusted return profiles, and are also liquid. This creates well diversified portfolios that have competitive yields. (Watch for more excerpts from our BFI Profile in coming days, or see the inaugural issue of our Bond Fund Intelligence for the full article.)
