PIMCO Global Bond Fund (Unhedged)

4 / 5 Stars
4 4 1 5 1
Zacks Investment Research
1 (Strong Buy)
Standard & Poor's
4 / 5 Stars
D- (Sell)

#8 in World Bond

U.S. News evaluated 98 World Bond Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.

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The fund has returned 8.02 percent over the past year, 4.08 percent over the past three years, 7.83 percent over the past five years, and 6.16 percent over the past decade.

Trailing Returns Updated 06.30.2014
Year to date 6.1%
1 Year 8.0%
3 Years (Annualized) 4.1%
5 Years (Annualized) 7.8%
10 Years (Annualized) 6.2%

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The managers of this fund scour the globe for countries with the best debt dynamics moving forward, including Germany, Australia, and Canada. “The focus is on quality,” says manager Scott Mather. “This is a time for investors we think to be very discriminating rather than trying to move down in quality to pick up extra yield.” Mather is also keen on government-guaranteed financials bonds. These investments came about after governments throughout the developed world intervened in the financial sector and, in effect, guaranteed the debt of some troubled financial companies. The appeal of these bonds, Mather says, is that they are high-quality investments with more growth potential than most sovereign debt.

As of July 03, 2014, the fund has assets totaling almost $877.57 million invested in 551 different holdings. Its portfolio consists of a variety of domestic and international bonds, with average durations between three and seven years. The fund does not seek to hedge foreign currency risk.

"It's a total return bond fund," Mather says. "We really have the opportunity to go out and seek a diversified set of what we think are the best bond opportunities in the world." Mather says that in 2010, he shifted assets away from sovereign debt--debt backed by a government--and focused on high-quality bonds in different sectors that have offered better yields. Opportunities have cropped up in high-quality mortgage bonds in the United States and in other countries such as Canada, Australia, and throughout Europe. "We're moving increasingly in that direction to find better bond returns but still very high-quality opportunities in non-sovereign debt," Mather says. "What you're getting paid for is an extra liquidity premium and what we think is an incorrect credit-risk premium." Mather attributes some of these opportunities to the continued fallout from the 2008 financial crisis. "There are some sectors that still haven't normalized," he says. "We think they offer some pretty good opportunities."

While the fund still holds some government-backed bonds, Mather says he's focusing more on countries with better debt metrics, such as Canada, Germany, and Australia. "The environment we're in is pretty bond-supportive in general. There's low inflation and low growth. Generally those things are very good for bond pricing and performance," Mather says. "We think that backdrop is still there but [there are also] rising risk premiums from the growing indebtedness of a country. It's a balancing act." The fund has returned 8.02 percent over the past year and 4.08 percent over the past three years.

Over the long term, the fund has fared well and consistently outperformed its benchmark and category. As of late 2010, the fund's five- and 10-year returns put it in the top 14 percent of the world bond category. The fund has returned 7.83 percent over the past five years and 6.16 percent over the past decade.

Investment Strategy

Founded in 1993, the PIMCO Global Bond Fund seeks total return by investing in intermediate bonds across an array of sectors including government, mortgage, and corporate debt. "It's not all government, it's not all corporate," Mather says. "It's a diversified basket of strategies."

The fund starts with a top-down approach to identify the most attractive countries in which to invest, then looks at fundamentals such as credit risk. "It's not a risky bond strategy," Mather says. "It's more of the anchor people want in their portfolios in uncertain times." Mather's more conservative tack means he shies away from large positions in emerging-markets and low-quality debt, but that strategy provides investors with what he says is safer exposure to non-dollar denominated debt.

Role in Portfolio

Morningstar calls this fund a specialty investment.


Scott Mather joined PIMCO in 1998 and took over the Global Bond Fund in 2008 after heading the company's mortgage- and asset-backed securities team. Prior to joining PIMCO, Mather worked as a fixed-income trader specializing in mortgage-backed securities at Goldman Sachs.


PIMCO Global Bond Fund (Unhedged) has an expense ratio of 0.55 percent.

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There is some foreign currency risk involved with investing the fund.

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