PIMCO recently launched the Flexible Credit Income Fund(PFLEX). The fund has a a flexible mandate to capitalize on a variety of credit market opportunities. On the fund’s website, PIMCO describes the opportunities it is expecting to find:
Q: Where do you see attractive opportunities for the Flexible Credit Income Fund today and in the future?
A: While we believe valuations on many traditional credit sectors (investment grade, high yield and bank loans) are relatively fair at current levels, we are seeing several robust opportunities today.
First, despite strong performance in U.S. real estate markets since the financial crisis, we continue to find value in both public and private mortgage debt, especially on the residential side. These opportunities include traditional legacy non-agency mortgage-backed securities (MBS), legacy loans that Fannie Mae and Freddie Mac continue to dispose, and opportunities to purchase newer origination non-agency mortgage loans directly. (We see many loans being made at significantly high interest rates given the regulatory burden associated with making non-traditional loans.)
Second, bank capital can provide attractive opportunities for investing in fixed income securities with equity-like features. Several tailwinds bolster this sector, including a steeper yield curve and a new U.S. presidential administration likely to support deregulation. In addition, many of last year’s headwinds to the sector (Italian banking concerns, legacy litigation, lower profitability) have diminished.
Third, while we believe that corporate credit valuations are largely fair at current levels, we continue to find attractive opportunities in both new issue and secondary markets across the high yield and bank loan sector. We look for opportunities where a new issue may experience weak uptake, allowing PIMCO to potentially influence the terms of the transaction and attempt to obtain better bondholder protections. On the secondary side, distressed credits may allow us to leverage our size and scale in credit markets as well as our distressed credit expertise in an effort to extract maximum value on behalf of our investors.
Finally, we expect fluctuations in relative value and bouts of credit market volatility to continue at least over the near term. The Flexible Credit Income Fund is built to seek out these dislocations given the breadth of its mandate, PIMCO’s robust credit resources and active management approach, and the ability to invest with a longer-term investment horizon.
For data on PIMCO Flexible Credit Income Fund, and other interval funds, see the Tools and Data section.