Morningstar

StocksPLUS™ Instl USD Acc

Analyst Report
Morningstar's Take
|09/08/2023
by Emory Zink
Shrewd portfolio managers, expansive resources, and sharp implementation benefit the various offerings under the PIMCO StocksPLUS strategy umbrella, as well as the RAE Plus version. Still, the structure in place is unconventional and faces challenges during atypical market environments.

Bryan Tsu and Jing Yang have helmed this effort since mid-2018. Responsible for orchestrating the strategy and overseeing the final portfolios, they work closely with Marc Seidner, who is responsible for the unconstrained bond portion. The RAE Plus version of this strategy benefits from two additional managers—Rob Arnott and Chris Brightman—who oversee the RAE Methodology for the equity portion of that particular offering. Dedicated trading, risk, and research functions enhance the resources at work here.

Rather than purchase stocks outright, the team replicates the desired equity exposure (also referred to as equity beta) with a combination of derivatives, options, and swaps. The cost of this fluctuates with markets, but it is less expensive than alternatives for equity exposure, and the trading team scours markets for optimal structures and pricing with an eye to efficiency. The assets remaining after equity replication are invested in an unconstrained bond fund, which also serves as collateral for the derivatives, options, and swaps portion.

While the strategy structure—an equity beta combined with an actively managed bond sleeve—remains consistent across offerings, the portfolio components can vary. Equity betas exist for exposure to the S&P 500, MSCI EAFE (U.S.-dollar-hedged and unhedged), and Russell 2000 Index. RAE Plus is more nuanced, as the equity portion doesn’t replicate an index but instead replicates exposure to a portfolio of value-leaning stocks based on a series of market signals and fundamental stock characteristics.

During periods when bond markets are under greater pressure than equities, this structure is at a disadvantage relative to equity-only categories. Still, over longer periods of time, the performance profile exhibits promise relative to peers.

 
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