Category: Research

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Shares Small Cap

Platinum Shares at discount as investors overlook its good traits

Business Strategy and Outlook

Platinum is an active manager founded in 1994, specialising in global equities. It concentrates on identifying unfashionable stocks with latent business and growth prospects. Platinum is not focused on asset allocation and pays little attention to its benchmarks. As a result, its portfolios often look little like–and returns often don’t resemble–their indexes. The firm manages about AUD 22 billion in FUM, and is one of the best known fund managers in Australia. 

Platinum eschews empire-building–such as special discounting to attract FUM, acquisitions or product proliferation–and prefers to spend most of its time managing money. Management is largely focused on minor product enhancements: clients can invest via unlisted funds, active ETFs, listed investment companies, mFunds, or investment bonds. Clients can also invest into performance fee class of funds. Moreover, the firm is making an effort to grow its client engagement and business development initiatives.

Financial Strength

Our fair value estimated to AUD 3.90 per share from AUD 4.25 after increasing the expected magnitude, and prolonging the duration, of net outflows to fiscal 2024. Platinum is in strong financial health, supported by a conservative balance sheet with no debt and a healthy cash balance. Platinum has maintained a very high dividend payout ratio since listing in 2007. An absence of debt, consistent earnings, strong cash flow conversion, and a durable balance sheet support the high dividend payout ratio target of close to 100%. High dividend payouts are a feature of the capital-light asset-management sector, delivering attractive shareholder returns while maintaining comfortable balance sheet settings.

Bulls Say’s 

  • Platinum is well known in Australian funds management. The firm may be able to take advantage of retail investors increasing allocation to global equities, if it improves medium-term performance. 
  • The long-term outlook is positive due to likely mandated increases in compulsory superannuation. However, fund underperformance, increasing competition and a trend to lower-cost passive investments are risks. 
  • Capital demands low, and free cash flow generation is strong. This supports a high dividend payout ratio and offers investors the opportunity of both growth and income returns.

Company Profile 

Platinum Asset Management is an Australian-based niche fund manager with a specialty in international equities founded in 1994. It offers region and industry-specific funds in addition to global portfolios. There is flexibility in the investment strategies at Platinum, with funds having the option to engage in short-selling, taking positions in foreign exchange markets, and derivative-based activities to manage risk and aid performance.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Funds Funds

MFS Institutional International Equity Fund

Approach

The managers rely on broad and thorough bottom-up research and a disciplined focus on moderately growing established companies with shares trading at decent prices. That is not unique, but the process is bred in MFS’ bones and has delivered strong results elsewhere, including Gold-rated MFS Global Equity MWEIX. The managers look for firms growing faster than global GDP. That’s a lower hurdle than more-aggressive growth funds since global GDP historic growth is in the single digits.

Portfolio

This is a diversified yet distinctive portfolio. It spreads its bets over its nearly 80 stocks. Most holdings were less than 2% of assets, and the fund had less than 30% of its money in its top 10 stocks. The strategy’s preference for competitively advantaged, moderately growing, developed-markets companies helps it stand out, though. More than two thirds of its holdings have wide or narrow economic moat ratings, much more than its foreign large-cap peers and relevant indexes, like the MSCI ACWI ex USA. It also had a large slug of assets in developed Europe, including the 2021 purchase of tire maker Cie Generale des establisment Michelin. 

Portfolio .png

People

The firm’s sprawling, yet experienced analyst team supports the managers. MFS has dozens of U.S. and nonU.S. equity analysts who divide responsibilities across eight global sectors. In addition, the firm’s large credit analyst team provides insights across the capital structure, and a quantitative research squad offers riskmanagement support. The equity analysts average more than 15 years of industry experience and nearly eight years’ firm tenure, and team turnover has been low. The managers also collaborate with the firm’s other non-U.S. portfolio managers, including Roger Morley and Ryan McAllister of Gold-rated MFS Global Equity.

Performance 

The fund has done well in a variety of environments. Its performance in the early 2020 pandemic-induced market collapse was mixed, though. Its 31% loss hurt but was less than the nearly 34% plunge of broader non-U.S. stock indexes. The typical foreign large-growth fund and growth benchmarks, however, shed about 30%. Pandemic-ravaged businesses like food service company Compass hurt, so did not owning more tech stocks.

Performance .png

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Shares Technology Stocks

NextDC benefits from industry megatrends

Business Strategy and outlook

NextDC is well-placed to benefit from industry megatrends, including the growing adoption of cloud computing, the Internet of Things, and artificial intelligence, leading to exponential growth in data creation. As per Morningstar analyst forecast NextDC will materially expand its capacity over our 10-year forecast period in order to meet growing demand for data center services. 

The COVID-19 pandemic has accelerated the digital transformation of many businesses and expedited demand for co-location data centers. Large numbers of employees have made the transition to remote working arrangements, leading to a greater reliance on digital technologies such as video conferencing and cloud-based platforms, and reducing the need to store servers at a centralized location. Beyond the COVID-19 pandemic, it is expected that remote working levels will remain elevated above pre-pandemic levels, resulting in continued demand for digital technologies and potentially less need for physical office space. This shift has increased demand for data centers and hybrid and multi cloud data storage solutions, which are supported by co-location data centers like NextDC. Hybrid solutions, which combine traditional infrastructure with cloud storage, can improve business outcomes through reduced latency and costs, increased security and resilience, and the flexibility to connect to multiple clouds based on business needs. These solutions provide greater flexibility and allow businesses to scale their data storage capacity based on workflow. 

As per Morningstar analyst, interconnection services are becoming increasingly important for NextDC as more businesses make the transition to hybrid cloud storage models. As of fiscal 2021, interconnection revenue contributed 8% of NextDC’s total recurring revenue and this will trend higher over time as its network ecosystem matures.

Financial Strength

NextDC is in sound financial health. The company raised AUD 862 million in fiscal 2020 via an institutional placement and share purchase plan. Proceeds from the equity raising will be used to fund the development of a third Sydney data center and further capacity expansion at its existing and new sites. Morningstar analyst forecast, gearing, measured as net debt/EBITDA, to deteriorate to above 3.6 times in fiscal 2023 as NextDC continues to invest heavily in portfolio expansion, before recovering from fiscal 2024 as capacity utilization improves. Morningstar analyst forecasted that NextDC will invest about AUD 4.0 billion during the 10 years to fiscal 2031 to grow total power capacity at a CAGR of 16%. It is also expected that NextDC will only consider paying dividends when it has accrued sufficient franking credits, otherwise the capital would be better spent on investments or repaying debt.

Bulls Say

  • NextDC is well placed to benefit from industry megatrends including the growing adoption of cloud computing, the Internet of Things and artificial intelligence leading, to exponential growth in data creation. 
  • The shift to cloud-based services increases the need for enterprises to connect to numerous cloud providers and the connection is fastest, safest and most efficient in a co-located data center. 
  • The COVID-19 pandemic has accelerated the digital transformation of many businesses and is leading to increased demand for cloud-based services.

Company Profile

NextDC is an Australia data center developer and operator with a focus on co-location and interconnection among enterprise and government customers, global cloud and information and communications technology, or ICT, providers, and telecommunication networks. NextDC provides physical space, cooling, power, and security services and offers optional technical and project management support. The company’s tenants house their servers within the data center and can connect to each other via physical and virtual connections.

 (Source: Morning Star)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Funds Funds

Pfizer strong pipeline development increasingly sets ups near term growth

Business Strategy and Outlook

Pfizer’s size establishes one of the largest economies of scale in the pharmaceutical industry. In a business where drug development needs a lot of shots on goal to be successful, Pfizer has the financial resources and the established research power to support the development of more new drugs. Also, after many years of struggling to bring out important new drugs, Pfizer is now launching several potential blockbusters in cancer, heart disease, and immunology. Pfizer’s vast financial resources support a leading salesforce. 

Pfizer’s commitment to postapproval studies provides its salespeople with an armamentarium of data for their marketing campaigns. Further, Pfizer’s leading salesforces in emerging countries position the company to benefit from the dramatically increasing wealth in nations such as Brazil, Russia, India, China, and Turkey. Pfizer’s recent decision to divest its off-patent division Upjohn to create a new company (Viatris) in combination with Mylan should drive accelerating growth at the remaining innovative business at Pfizer. With limited patent losses and fewer older drugs, Pfizer is poised for steady growth.

Financial Strength

Pfizer holds a very strong financial position with a large degree of flexibility. As of the end of 2020, debt/capital stood at 39% and debt/EBITDA was 2.9, which suggests that Pfizer remains on solid financial footing. With the majority of its cash flow derived from a diverse portfolio of products, it’s not expects a high degree of volatility with future earnings. After a deep dive on several of Pfizer’s pipeline drugs combined with continued strong data for COVID-19 treatment Paxlovid, it has increased our projections for several key drugs leading to a fair value estimate increase to $48 from $45.50. The strong pipeline increasingly supports our wide moat rating for the firm. For the core business of Pfizer, it is expected to close to 6% annual sales growth between 2020 and 2025 as new drugs offset generic competition. 

Bulls Say’s 

  • Bega is shifting investment to the spreads and grocery business, which we view as less commoditised and higher margin than dairy, with strong niche positions in Vegemite and peanut butter 
  • External factors outside of Bega’s control, such as the weather, can adversely impact supply and demand dynamics. This can impact commodity prices, inputs costs and the firm’s supply chain and lead to volatile earnings 
  • Changing consumer trends toward dairy-free and vegan diets could lead to declines in per-capita dairy and cheese consumption, weighing on the majority of Bega’s earnings

Company Profile 

Pfizer is one of the world’s largest pharmaceutical firms, with annual sales close to $50 billion (excluding COVID-19 vaccine sales). While it historically sold many types of healthcare products and chemicals, now, prescription drugs and vaccines account for the majority of sales. Top sellers include pneumococcal vaccine Prevnar 13, cancer drug Ibrance, cardiovascular treatment Eliquis, and immunology drug Xeljanz. Pfizer sells these products globally, with international sales representing close to 50% of its total sales. Within international sales, emerging markets are a major contributor.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
ipo IPO Watch

The Medplus Health Service IPO Subscribed 52.59 times on its final day

Incorporated in 2006, Medplus Health Services is India’s second-largest pharmacy retailer. The company offers pharmaceutical and wellness products .

 The IPO comprises a fresh issue of equity shares worth Rs 600 crore and an offer-for-sale (OFS) of Rs. 798.30 crore. The Medplus Health Service IPO opened at Dec 13, 2021, and closed at Dec 15, 2021 and listed on both NSE & BSE at Dec 23, 2021.The minimum lot size comprises 18 shares at a price band of Rs.780 -796 per equity share. A retail-individual investor can apply for up to 13 lots.

The objective of the issue is to fund the working capital requirement of the subsidiary, Optival; and for general corporate purposes.

Axis Capital, Credit Suisse Securities (India), Edelweiss Financial Services and Nomura Financial Advisory and Securities (India) were the managers to the offer. 

Medplus Health Services IPO has got 50 per cent reserved for qualified institutional buyers (QIBs) and 15 per cent reserved for non-institutional investors (NIIs). The remaining 35 per cent of the issue is available for retail investors.

The scrip got listed at Rs 1,040.00 a piece on the National Stock Exchange (NSE), thereby registering a gain of 30.65 per cent from its offer price of Rs 796.00, while on the BSE, it opened at Rs 1,015.00, up 27.51 per cent from the issue price.

Medplus IPO Subscription Status

The Medplus Health IPO was subscribed 52.59 times on Dec 15, 2021.The public issue subscribed 5.24 times in the retail category, 111.90 times in the QIB category, and 85.33 times in the NII category.

About the Company

Incorporated in 2006, Medplus Health Services is India’s second-largest pharmacy retailer in terms of the number of stores and revenue. The company offers pharmaceutical and wellness products i.e. medicines, vitamins, medical devices, test kits, and fast-moving consumer goods i.e. home and personal care products, baby care products, sanitizers, soaps, and detergents, etc. It is also the first pharmacy retailer in India to offer an omnichannel platform wherein customers can purchase products through stores, place orders over the telephone, online orders, and a Click and Pick facility.

As of June 31, 2021, the company has a strong pharmacy retail network of 2,165 stores across Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Odisha, West Bengal, and Maharashtra. In fiscal 2021, its share of the organized pharmacy retail based on revenue from operations in Chennai, Bangalore, Hyderabad, and Kolkata reported at 30%, 29%, 30%, and 22% respectively. It follows a cluster-based approach for store network expansion wherein it first opens high store density in a populated residential area within a target market. The company’s warehouses are located in Bengaluru, Chennai, Hyderabad, Vijayawada, Kolkata, Pune, Bhubaneshwar, Mumbai, and Nagpur.

(Source: DRHP of Medplus Health Services Limited IPO)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks Shares

Novartis results beat consensus delivering revenue of US$12.95bn

Investment Thesis:

  • Relatively high barriers to entry, with a significant amount of funds deployed in R&D every year. 
  • Recent and upcoming divestments will streamline the business and provide increased focus to deliver shareholder returns. 
  • Recent product launches indicate solid sales momentum, with near-term product pipeline potentially providing further upside. 
  • Selective bolt-on acquisitions to supplement organic growth. 
  • Operating efficiency focuses to further support earnings growth. 
  • As the new management team improves Company culture, investors are less likely to ascribe a discount to the stock based on legacy issues.

Key Risks:

  • Recently launched products fail to deliver sales growth as expected by the market. 
  • New product pipeline fails to yield “blockbuster” products or delays in bringing key products to market. 
  • R&D programs do not yield new long-term ideas. 
  • Increased competition (pricing pressure & innovative products) from new entrants or existing players. 
  • Value destructive M&A. 
  • Regulatory / litigation risks.

Key highlights:

  • NOVN’s product development pipeline continues to progress well without any major disruptions.
  • Novartis (NOVN) 2Q21 results beat consensus on both top and bottom line, delivering revenue of US$12.95bn (vs estimates of US$12.49bn) and EPS of US$1.28 (vs estimate of US$1.08) as disruption from the pandemic waned, with management announcing the growth drivers and launches continue to show excellent momentum with +35% growth and now contributing to more than 50% of top line.
  • The Oncology business continued to recover delivering +7% growth with sales reaching US$3.9bn during the quarter, with management expecting to see accelerated growth if trends move toward pre-Covid-19 levels in 2H21.
  • Financial position remained strong with the Company not experiencing liquidity or cash flow disruptions during 2Q21 due to the Covid-19, ending the quarter with total liquidity of US$5.4bn.
  • FY21 net sales to grow low to mid-single digit, with Innovative Medicines to grow mid-single digit and Sandoz to decline low to mid-single digit, and core operating income to grow midsingle digit (ahead of sales), with Innovative Medicines growing mid to high-single digit, ahead of sales, and Sandoz declining low to mid-teens.
  • The Company retained strong capital structure (credit rating of A1/AA- by Moody’s/S&P), not experiencing any liquidity or cash flow (2Q FCF up +17% over pcp) disruptions during 2Q21 due to the COVID-19 pandemic.

Company Description: 

Novartis AG (NOVN) is an innovative healthcare company headquartered in Basel, Switzerland, with approximately 125,000 employees. In 2017, the Group reported net sales of US$49.1bn, while R&D throughout the Group amounted to approximately US$9.0bn. The Company sells its products in approximately 155 countries. The group has two segments which it reports on: (1) Innovative Medicines (Oncology / Pharmaceutical), and (2) Sandoz generics division.

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Funds Funds

Kotak Bond Direct Growth: Stable team supports the process and has the potential to outperform in the long term with its active duration positioning

Kotak Bond is actively managed and run by an experienced team with a robust investment strategy. The fund has delivered consistent returns, and we believe it is a strong choice for investors who seek a quality portfolio and are willing to occasionally take a higher investment risk for higher returns.

Approach 

The strategy is run using a team-based approach and has a strong fundamental process in place. The fund is more focused towards taking active duration bets and invests primarily in high-quality credits. Credit analysis is divided into banking, nonbanking financial companies, and manufacturing debt, further demarcated into three buckets based on the strength of the business, management, and corporate governance standards. The qualitative assessment is then followed by rigourous quantitative analysis wherein financial ratios such as leverage, coverage, and solvency ratios are considered.

Portfolio

In 2021, the manager maintained a high allocation to government securities mainly towards the medium and long end because of attractive yields. He is overweight at the medium end because he believes that, regardless of whether the yield went up or down, the middle of the segment would provide a good level of carry and roll-down advantage. At the same time, the steepness of the curve made the longer end of the curve look appealing. However, because of the uncertainty surrounding the rate hike, he kept a limited the fund avoids investing in anything below AAA segment and intermittently holds higher cash/money market instruments to take opportunistic trading calls when markets are bumpy.

People

Abhishek Bisen is an experienced manager who has been with the fund house since October 2006. He took over this fund in April 2008 along with Deepak Agrawal. From July 2015, Bisen has been sole manager after Agrawal moved out to manage credit and shorter-maturity funds. Bisen is well-engrained in Kotak’s philosophy, and his skills complement the investment process. The fixed-income strategies are run using a team-based approach that follows an inclusive culture. It fosters the collective input of the investment specialists closest to the source of investment information.

Performance

Abhishek Bisen has delivered robust returns during his tenure from April 2008 to November 2021. It ranked in the first quartile by outperforming 82% of its peers, delivering returns of 8.19% versus the category average of 7.39%. In 2021, he maintained a higher exposure to medium-duration bonds and government securities. This resulted in superior risk-adjusted returns for the fund. We believe the fund has the potential to outperform with its active investment strategy across interest-rate cycle. 

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Funds Funds

HDFC Corporate Bond Growth: A fund focused to generate optimise return by investing in high credit rated instruments

Approach 

The investment philosophy is to optimise returns without taking excessive duration or credit risk. with most performance is driven by selecting securities offering attractive yields within the AAA rated segment. Expectedly, the investment approach relies on fundamental research. It entails combining qualitative aspects with quantitative analysis. This in turn helps the managers to determine issuer exposure they can take, thereby acting as a risk-management tool for the individual portfolio and the fund company. The investment team lays more emphasis on risk control, thereby focusing on balancing safety, liquidity, and return.

Portfolio 

The fund’s investment mandate is to invest at least 80% of assets in corporate bonds having a rating of AA+ and above. Anupam Joshi’s emphasis on liquidity and risk control is borne out by the fund’s portfolio, where almost 100% of assets are invested in AAA or equivalent rated securities. Papers issued by public-sector undertakings such as NABARD, PFC, and REC continue to find a place in the portfolio. From the private sector, established names such as HDFC and Tata Sons, in which the manager has confidence, feature in the portfolio. On the duration front, the team believes interest rates will move up from where they are currently, but it will be a more gradual increase. In line with the same, the modified duration of the fund has been reduced in the past year to 2.72 years in November 2021 from 3.35 years in October 2020. Finally, Joshi will build cash when there aren’t attractive investment opportunities and to ride out periods of volatility and uncertainty.

People

Anupam Joshi joined HDFC Mutual Fund in October 2015 and has been managing this fund since then. Earlier, he was associated with IDFC Mutual fund as portfolio manager from 2008 till his exit from the fund house.

Performance

Under Anupam Joshi (October 2015-November 2021) the fund’s direct share class has clocked an annualised return of 8.45%, outperforming the category average (6.51%) and featuring in the top performance quartile. Under the difficult environment of 2020, the fund clocked a return of 12.09%, outperforming the category average of 9.10%. In 2021, too, the fund’s direct share class has delivered a top-quartile performance. The fund is also a top-quartile performer over the trailing one-, three- and five-year periods.

About the fund  

The scheme seeks to generate income/capital appreciation through investments predominantly in AA+ and above rated corporate bonds. Its benchmark against NIFTY Corporate Bond Index. The investment strategy is well-defined for this fund, which also paves way for its effective and predictable execution. It’s a low-risk, short- to medium-duration strategy that works on the philosophy of optimising returns for investors without exposing them to excessive duration or credit risk. Therefore, investments are made only in AAA rated securities and the duration is maintained within a range of 1.0 to 4.0 years.

Joshi brings in his own style of investing while managing this fund. For instance, earlier the fund was managed with an approach of holding majority of investments till maturity, thus allowing a linear roll-down in its average maturity. Joshi prefers managing the fund more actively. The strategy has its limitations: In times when credit markets are buoyant, the fund may find it hard to match peers that, within the defined mandate of the category, can go down the credit curve. The fund may also struggle against peers that follow a more dynamic approach to duration management, compared with Joshi’s measured approach, during fast changing interest-rate scenarios.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
IPO Watch

Supriya Lifescience displays healthy listing with 55% premium

Money bag with the word IPO (Initial public offering; stock market launch) and a calculator. The first public sale of shares of a joint stock company. Business and finance concept

The Rs 700 crore- IPO by the API manufacturer, Supriya Lifescience was issued from December 16 to 20, 2021. The issue price was in the range of INR 265-274 per equity share. The Book Running Lead Managers were Axis Capital Limited and ICICI Securities Limited.

Overall, the issue received bids for 1,03,89,57,138 shares against 1,45,28,299 shares on offer, according to NSE data. The IPO comprised a fresh issue of up to Rs 200 crore and an offer for sale of up to Rs 500 crore.

The subscription by QIBs was 31.83 times, NII category was subscribed 161.22 times, Retail investors subscribed 56.01 times, thereby making the entire subscription 71.51 times.

The pre-issue holding of promoters was 99.98%, which after issue is 68.24%.  The scrip was listed on secondary market at INR 425 on BSE with premium of 55.11% and on NSE it was listed at INR 421.

Proceeds of the issue would be utilized for funding capital expenditure requirements of the company, repayment and/ or pre-payment, in full or part, of certain borrowings availed by the company and general corporate purposes.

Supriya Lifescience looks forward to achieve continuous growth in coming years on account of strong fundamentals. Since past three to four years it has bee growing at the CAGR of 18%. The company has managed to maintain 40% EBITDA margin, which is due to their focus on penetrating into more regulated markets where we are able to get a much better average selling price for the existing products. They look forward to add more APIs into existing therapeutic categories apart from adding new therapeutic categories in their basket, like decongestants, anti-gout, xanthine derivatives and more vitamin derivatives. They wish to focus more on anti-anxiety therapies.

Supriya Lifescience envisages to expand across newer geographies and focus more on regulated markets like North America, Japan and China. Currently, twelve of the existing products are backward integrated and contribute about 65% of the total revenue and it continues to be their strategy for further capacity expansion and product developments as well. About Rs 92 crore of the amount that will be raised would be utilised for capacity enhancements by adding a new production block which would add further capacity.

About the company:

Supriya Lifescience is a manufacturer and supplier of active pharmaceutical ingredients (APIs) with a focus on research and development. As of October 31, it had niche product offerings of 38 APIs focused on diverse therapeutic segments such as antihistamine, analgesic, anaesthetic, vitamin, anti-asthmatic and antiallergic. The API maker has consistently been the largest exporter of Chlorpheniramine Maleate and Ketamine Hydrochloride from India, contributing to 45-50 per cent and 60-65 per cent, respectively, of the API exports from India, between fiscal 2017 and 2021.

(Source: economictimes.com)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Fixed Income Fixed Income

PIMCO ESG Global Bond Fund: A Fund providing exposure to core bond holding with ESG bias

The Fund provides exposure to investment grade securities from around the globe while incorporating PIMCO’s ESG screening framework. The strategy can be used as a core bond holding in client portfolios who have an ESG bias. The PIMCO Global Bond Fund is in attraction due to the well-resourced / experienced investment team and PIMCO’s well established investment process. PIMCO’s ESG framework involves three stages: (1) Exclude (restrictions on certain sectors). (2) Evaluate (best in class ESG issuers + prime engagement candidates). (3) Engage (engage issuers to improve ESG related business practices).

Downside Risk

  • Interest rate risk (bond prices and yields are inversely related). 
  • Credit risk (the risk of downgrades or even default) & inflation risk. 
  •  Personnel risk – significant turnover among the 3 lead PMs.

Fund Performance (As at Aug, 2021)

C:\Users\Akhila\Downloads\Screenshot 2021-12-29 144804.png

Investment Process

PIMCO applies a wide range of strategies including Duration analysis, Credit analysis, Relative Value analysis, Sector Allocation and Rotation and individual security selection. The Manger looks to make active decisions with a long-term focus and avoid extreme swings in duration or maturity with a view to creating a steady stream of returns. The Manager has designed and structured a global investment process that includes both top-down and bottom-up decision-making. The first and most important step in the firm’s process is to get the long-term view correct. The figure below provides a summary of the key elements in the investment process.

C:\Users\Akhila\Downloads\Screenshot 2021-12-29 145011.png

Secular analysis: The Manager considers its secular analysis as critical to the investment process, with the firm devoting three days every year to a “Secular Forum”. At this forum, the firm formulates PIMCO’s outlook for global bond markets over the next three to five years. Selected members of the investment staff are assigned secular topics to monitor, including monetary and fiscal policy, inflation, demographics, technology, productivity trends, and global trade. Secular researchers tackle their subjects on a global basis and approach them over a multi-year horizon. At the forum the researchers present their findings to all of the firm’s investment professionals. 

Decision making: Post Secular and Economic Forums, the Investment Committee (senior portfolio managers) develop major strategies that serve as a model for all portfolios using a consensus-based approach. The IC utilises top-down analysis provided by the forums as well as bottom-up input from specialists who focus on various fixed income sectors and the regional portfolio committees. The Investment Committee sets targets for portfolio characteristics such as duration, yield curve exposure, convexity, sector concentration and credit quality and ensures themes are consistently applied across all portfolios. The portfolio management group including the PIMCO Global Strategy team, through the incorporation of the Investment Committee’s model portfolio characteristics, will then construct the Fund.

About the fund

 The ESG Global Bond Fund is an actively managed portfolio of global fixed interest investment which incorporates PIMCO’s ESG screening. The portfolio predominantly invests in governments, corporate, mortgage and other global fixed interest securities.

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.