PIMCO

How Did Asset Managers Respond to QE3?

Posted by Mike McLaughlin on Sep 14, 2012, in Thoughts , tagged with Direxion, iShares, Janus, OppenheimerFunds, PIMCO, QE3, Russell, Twitter, Vanguard, Virtus

It’s almost old news by now. Yesterday, the Fed announced QE3 and ongoing purchases of mortgage-backed securities at the rate of $40B per month. So, how did asset managers respond?

Using Twitter as an (incomplete) proxy for firms’ responses, here’s the short, chronological list of activity as of 5pm on the day of the news:

Janus gives a 140-character critique of the Fed. No further analysis as of yet, but a responsive opinion.
Direxion tweets some specifics to traders.
iShares establishes its point-of-view by calling the buying program “aggressive” and links to a news story from Reuters.
Virtus ties the Fed’s move to senior floating rate debt and links to an ultra-concise blog post.
In the #AskMcNabb Twitter Q&A, Vanguard’s Bill McNabb notes that he is not favor of QE3 due to excessive long-term risks. (Note that the questioner also asked how much Mr. McNabb can bench press. Unfortunately, no insight was given.)
PIMCO links to Mohamed El-Erian’s thoughts on FT.com. Bonus points for being the first long-form response; a slight ding for requiring an extra click to get to the content.

That is six responses within about six hours. As a sidebar, it’s interesting that none of the content referenced any of trending conversations on Twitter (#QE3, #Fed, etc.). Per the screen capture below, a search showed Oppenheimer and Russell taking advantage of Twitter’s social features. But these were from before the Fed’s announcement.

I don’t know exactly what I expected when I started to look, but overall I’d characterize the volume as a bit disappointing. The biggest financial news of the week warranted a bigger, faster response. Firms know that; it’s still a matter of getting the process ironed out.

Living Inside the Box

Posted by Anu Heda on Jul 19, 2011, in Thoughts , tagged with PIMCO, Vanguard

Large corporate culture conditions us (in the American business community) to strive for “thinking outside-the-box.” When was the last time you were brought into a conference room and told, “Ok, we’re going to think outside-the-box?” My money is on this happening to you at least once in 2011. There’s nothing inherently wrong with outside-the-box. It speaks to some desire for differentiating a product, service, or process. In marketing initiatives, there’s often a desire to have out-of-the-box communications.

Through recent FA and institutional investor interviews, I’m learning the value for investment managers to communicate inside-the-box. Consider the box as strategy, asset class, or categorization a fund (or fund family) is matched to.

Repeatedly, I hear advisors and institutional investors match strategy with fund family when discussing investment selection. A frequent (and immediately delivered) comment sounds like this, “Well, for intermediate bond I’ll put a client in Pimco Total Return. For equity exposure to the Pacific, I allocate to the Vanguard Pacific ETF.” That’s not to say Vanguard or Pimco are dominant or superior to other providers. What I ascertain is that those firms have defined their expertise in intermediate bond strategies and the Pacific Rim, respectively. So much so, many advisors simplify their practices by matching those funds to those categories,

Perhaps this is a straightforward approach to consider.

Define your fund box – communicate how your clients should categorize your fund
Clarify how this box is important – answer (to all prospects) why anyone should care about this box
Build a reputation – work day and night to communicate why your fund is great inside that box

Obviously this is easy to speak about and difficult to execute. But with small steps and consistent input, you could evolve your target audience’s thinking to put your fund “inside-the-box” and hopefully keep it there.

This process (I use that loosely) seems to have worked for Warren Buffet who defined his box as value investing (specifically the Graham and Dodd investing models), spoke for decades about the enduring principles of value investing, and then built his reputation as the world’s leader.

What Do You Say About Risk?

Posted by Anu Heda on May 25, 2011, in Thoughts , tagged with BlackRock, Dodge & Cox, Janus, MFS, PIMCO, Pyramis, Risk Management, Vanguard, Western Asset

In our consulting work, we meet marketing executives wanting to extol their firm’s risk management practices. Risk management poses a specific problem. Stay to high-level and it sounds like you don’t manage risk. Discuss procedures and controls and risk losing your audience.

Below is copy taken directly from three industry leading firms: Western Asset, Janus, and Dodge & Cox. Great firms struggle to convey a straightforward process. Many firms – BlackRock, MFS, PIMCO, Pyramis, & Vanguard – don’t emphasize the topic on their public Web sites. Any of the below copy strike a chord with you?

We’re curious what you think should be conveyed when discussing risk management. Send us an e-mail or message via Twitter. I pasted all that copy into a word cloud software to see what words are most common: risk management is often described with the words “investment” and “team” (note: I excluded “risk” and “management.”)

Western Asset

Western Asset has a dedicated risk management team that oversees risk management and incorporates it into the investment process. While this team is integrated into the portfolio management unit, it has a separate and independent reporting structure. Western’s risk management team combines the best of the Firm’s technology and experience to develop useful risk management tools and procedures. These tools and procedures provide daily analysis for both the Investment Team and the Analytics/Risk Management Department, ensuring the integration of professional risk management practices into the investment process.

Janus

The Janus Risk Management team, headed by Dan Scherman, serves as a resource for portfolio management to assure that every portfolio maintains the appropriate level of risk given its performance objective. Additionally, the team helps to assure that risks taken are associated with intended bets.

Tools used to monitor risk include:

Tracking error decomposition, characteristics, concentration, Janus ratings, under-weights/over-weights
SPAR returns-based style analysis
Performance attribution (Factset, BARRA, Wilshire)
Index and competitor analysis, as necessary

Dodge & Cox

From the earliest days, Dodge & Cox’s investment approach has stressed evaluation of risk relative to opportunity. A strict price discipline — steering clear of popular choices that come at a price premium we would rather not pay — is critical to achieving our investment objectives. Low valuation investments, for example, typically reflect low investor expectations that may serve as a buffer against the risk of significant price decline; these low expectations may also create greater potential for capital appreciation should investor pessimism turn out to be unwarranted or short-lived. At all times, our ongoing search for superior relative value is guided by a rigorous research process that seeks to differentiate the short-term concerns that may be temporarily depressing an investment from the intractable, long-term problems that could doom it.

Nobody is talking about the five letter word

Posted by Anu Heda on Oct 13, 2010, in Thoughts , tagged with PIMCO

P-I-M-C-O. There, I wrote it. Bond flows continue to outpace equities. And PIMCO is taking a huge leap forward in market share. But the scale became evident by reading an advisor’s suggested portfolio (WSJ id/pwd required). In that article, Mr Malloon suggests investing nearly 40% of a model portfolio with PIMCO. Obviously, let’s give credit where credit is due. PIMCO is hitting on all cylinders if they’re readily convincing a long-term professional to allocate 40%.

Are executives elsewhere coming up with marketing strategies to counter-attack? What steps could be taken? Here’s a simple 4P review (product, price, promotion, place), with a focus on product.

Product – Mutual fund products are closely tied to performance and we all know – nobody can guarantee performance. Many industry insiders tie flows to performance. The conventional wisdom is that the PIMCO funds are “killing it.” Are they? Using Morningstar, PIMCO’s first fund ranks 23rd for 5-year return (see here). There are 20 fund families outperforming. Past performance is not an indicator of future performance and communications have to be careful to avoid supporting that message. Nonetheless, is there an opportunity to dispel the conventional wisdom?
Price – Interesting idea – can a fixed income shop promote themselves as “the lower-cost way to fixed income investing?” I think so (obviously some compliance perspectives will be necessary). That’s an interesting strategy. That firm will learn: what is the sensitivity to price for fixed income? Also, how robust are the PIMCO margins – will they match the lower cost?
Promotion – PIMCO, Bill Gross in particular, does this extremely effectively. He’s on TV. He’s in the paper. He’s podcasting. Developing a promotional platform to rival that is difficult, slow, and risky. Nothing to see here.
Place – Potentially the best marketing opportunity is to find a channel or distribution partner that is looking to diversify AUM. Probably, there are risk managers at each wirehouse firm calculating percentage of assets in PIMCO funds and subsequently signaling the potential danger therein.

There are additional considerations and approaches. The first step is to acknowledge the elephant in the room. And that the elephant is hungry. Is this the new normal?