Emerging Markets Corporate Bond Strategy

What is PIMCO’s Emerging Markets Corporate Bond Investment Approach?

Investment opportunities in emerging markets (EM) corporate bonds have expanded dramatically in recent years. Governments across the developing world have sought to shift their economies to a higher growth plane by facilitating increased investment in key sectors, allowing private investments in formerly state-owned companies and supporting the growth of privately held companies. As a result, the EM corporates market has deepened in size and attracted more investor interest, and is now offering investment opportunities in many sectors like energy, metals and mining, transportation, telecommunications, social housing and banking, among others. The PIMCO Emerging Markets Corporate Bond Strategy aims to benefit from this development.

PIMCO’s process for investing in emerging markets corporate bonds takes place within the context of our robust emerging market investment framework. Sovereign research forms the foundation for this framework and, consistent with the firm’s overall investment philosophy, our approach begins with a secular analysis of the global economy. We then employ a multi-step process for analyzing sovereigns. First, we identify countries with strong, underlying credit fundamentals (including strong fiscal positions, stable/improving political situations, comfortable reserve levels, and debt profiles that can withstand financial shocks, among others). Second, we consider the impact of our global outlook on these countries, including prospects for demand from advanced economies, commodity prices, interest rate trends and other components of the external environment. Finally, we evaluate the technical conditions of the market to identify both the upside and the imbalances that could potentially lead to market dislocations in a given country.

Within those countries favored by our sovereign research process, we leverage PIMCO’s credit research capabilities. This entails industry analysis wherein credit analysts and portfolio managers work together to identify those sectors which are likely to benefit from either explicit or implicit sovereign support or where there is an important and identified structural shortage which will be fulfilled by the sector. Individual issuer and issue analysis complement the industry assessment. Fundamental, entity specific analysis is one of the most critical components of our corporate bond investment approach and entails evaluation of the company or project’s viability; management’s capability; potential operational and financing challenges; and other technical risks. Issue specific factors such as guarantees, concessions, and covenants are likewise taken into account.

This disciplined multifaceted framework provides the basis for our country, industry, and issuers’ weightings, duration, curve, currency and instrument selection decisions, as well as relative value assessments. By emphasizing high quality countries and sectors strongly positioned for growth, often of systemic importance for the government, it helps us in our effort to optimize the set of strategies for a given investment environment while seeking to limit downside risk.


* PIMCO considers an emerging market to be any country defined as an emerging or developing economy by the World Bank (or its related organizations) or theUnited Nations (or its authorities).

Past performance is not a guarantee or a reliable indicator of future results. 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 the current low interest rate environment increases this risk. Current 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 domiciledsecurities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets.Infrastructure entities are involved in the construction, operation, ownership or maintenance of physical structures, networks and other infrastructureassets that provide public services; infrastructure entities, projects and assets may be sensitive to adverse economic, regulatory, political or otherdevelopments and may be subject to a variety of events that adversely affect their business or operations. Sovereign securities are generally backed by theissuing government, obligations of U.S. Government agencies and authorities are supported by varying degrees but are generally not backed by the full faithof the U.S. Government; portfolios that invest in such securities are not guaranteed and will fluctuate in value. PIMCO strategies utilize derivativeswhich may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closedwhen most advantageous. Investing in derivatives could lose more than the amount invested. The credit quality of a particular security or group ofsecurities does not ensure the stability or safety of the overall portfolio. There is no guarantee that this investment strategy will work under all marketconditions or are suitable for all investors and each investor should evaluate their ability to invest for a long term especially during periods of downturn in the market. Diversificationdoes not ensure against loss. Investors should consult their investment professional prior to making an investment decision.

The JPMorgan Corporate Emerging Markets Bond Index (JPM CEMBI) is a global, liquid corporate emerging markets benchmark that tracks U.S.-denominatedcorporate bonds issued by emerging markets entities. It is not possible to invest directly in an unmanaged index.
