PIMCO All Asset Fund (PASDX) (PAAIX) is a fund of funds that uses tactical allocation to a wide selection of PIMCO funds. The fund is famous for its active asset management, especially in non-traditional asset classes such as Treasury Inflation-Protected Securities (TIP), commodities and emerging market bonds.
The fund's portfolio manager is Rob Arnott who is the founder and chairman of Research Affiliates, a sub-advisor to PIMCO. Previously, he worked for First Quadrant Corp., Salomon Brothers, TSA Capital Management and The Boston Company. On Apr.30 2003, he became the portfolio manager of PASDX and has been with the fund for 8.7 years. The fund, as the title "fund of funds" suggests, invests in more than 30 underlying PIMCO funds which include bond funds, inflation-protected bond funds, and some variations of stock indexing through PIMCO StockPLUS funds.
PASDX has done well since it was established on Apr.30 2003. As of 4/6/2011, the fund achieved 6.59% annualized return in the past 5 years, ranked number 2 in Morningstar’s moderate allocation (MA) category. The fund only lost 15.93% in 2008 when the financial tsunami swept through the U.S., ranked fourth in MA category. Since then, it has recovered smartly and gaining 22.42% in 2009. In 2010, the fund was also doing well and gain 13.36%.
Let's take a closer look at the variation of the fund’s asset allocation and to discuss how that can benefit to investors. Based on its shareholder fund report on 12/31/2010, its portfolio had the following strategies (compositions):
- Alternative Bond Strategies 36.7%
- Alternative Equity Strategies 19.5%
- Inflation Related Strategies 18.7%
- US Bond Strategies 9.8%
- Long Equity Strategies 8.5%
- Short-Term Strategies 6.9%
As of 31/12/2010, the fund invested 15.11% in PIMCO Fundamental Advantage Total Return Strategy, which is a long-short fund that invests in an enhanced stock index fund and PIMCO Total Return bond fund. The fund also allocated 11.68% asset to PIMCO Unconstrained Bond, which mainly invests in fixed-income securities and can actually short bonds.
We further applied MyPlanIQ's SmartMoneyIQ tool to analyze its recent portfolio correlations with various asset benchmarks. The following table illustrates the asset correlation percentages for PASDX in the last four weeks:
PASDX Asset Correlation Analysis
Date | IntlBond | CASH | USBond | IntlStk | USStk |
2011-03-11 | 2.41 | 20 | 57.83 | 15.2 | 4.56 |
2011-03-18 | 0 | 12.84 | 67.77 | 17.22 | 2.16 |
2011-03-25 | -0 | 14.58 | 65.25 | 20.17 | 0 |
2011-04-01 | -0 | 30.04 | 51.24 | 18.72 | 0 |
The above table is derived by MyPlanIQ SmartMoneyIQ tool. The percentage on each column reflects the portfolio’s correlation coefficient with the asset class benchmark for that column.(assuming all correlation coefficients are summed to 1). They do not necessarily reflect the actual asset allocation of the fund.
From the table above, we can observe that the fund was optimistic in the prospect of the bond market, especially the U.S. bond market. Actually, from 3/18/2011 to 3/25/2011, the U.S. bond market correlation has increased and has been at a high level. In the meanwhile, the correlation with international stocks had increased slightly for three consecutive weeks. These are bullish sign. The last week’s dramatic increase of cash correlation (from 14.58% on 3/25/2011 to 30.04% on 4/1/2011) and the decrease of U.S. bond correlation (from 65.25% on 3/25/2011 to 51.24% on 4/1/2011) might be due to the quarter end rebalancing activities.
From the above analysis, Investors can learn a few things:
- Don't be afraid of holding large amounts of cash.
- Use alternative bond strategies that can go long and short for hedging purpose. For average investors who can only use plain vanilla bond ETFs or mutual funds, they should consider non traditional fixed income vehicles including inflation-protected bonds (such as TIP or international inflation-protected treasury bond ETFs (WIP)), emerging market bonds (EMB) or high yield bond funds (HYG).
- Keeping a portion of equity exposure is a reasonable way to combat inflation.
One of the fund’s advantages is that it is a real return fund: it focuses on deriving after inflation return. Thus, inflation hedging is part of its main mandate. As more Americans are increasingly relying on retirement investing income to fund their future retirement or financial needs, inflation risk becomes important. Federal Reserve's ongoing QE2 will only exacerbate inflation pressure. It does pay to learn from the fund and its great manager. We will have more follow up articles on recent comments made by Rob Arnott.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
