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Pimco bond fund shines amid 'new normal'

swon@globeandmail.com

What are we looking for?

The best returns among global bond funds over the past year.

Let's see how these go-anywhere pros can do in an ultra-low interest rate environment.

The screen

We looked for the 15 best performers among global fixed income funds for the year ended April 30. U.S. dollar, segregated and duplicate versions of funds were excluded.

What did we find?

A new kid on the bond block leading the pack.

Pimco Monthly Income, which was launched Canada in January, 2011, posted a 13.6-per-cent return. About 85 per cent of the assets are now in the United States, 10 per cent in Europe and 4 per cent in emerging markets. This fund must have 50 per cent of assets in investment-grade bonds, and no more than 20 per cent in the developing world.

The fund's performance has been helped largely by investments in U.S.-based mortgage-backed securities, and also in senior secured bank loans, said Alfred Murata, a portfolio manager with Newport Beach, Calif.-based Pacific Investment Management Co. LLC.

European financial institutions, which have been trying to reduce debt amid a weakening economy, have been selling off securities, and "we were able to accumulate them at attractive levels" in late 2011, said Mr. Murata. "Pimco is often the first call for many of these institutions."

Dan Ivascyn, managing director at Pimco, who runs a U.S. version of the fund, said the

strategy is to find "more creative" ways to generate income, and to avoid risks associated with lower-rated corporate bonds amid all the uncertainty emanating from Europe's debt crisis and China's economic slowdown.

The mortgage-backed securities, which were purchased at distressed levels, have gradually risen in value and generated a lot of income as they benefit from more stability in U.S. housing, Mr. Ivascyn said.

The fund's overall outlook has been articulated by Pimco co-founder Bill Gross, who has warned that the global economy is vulnerable to a "new normal" of low growth. There is "a lot of economic uncertainty," said Mr. Ivascyn. "We are quite cautious."

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TOP-PERFORMING GLOBAL FIXED INCOME FUNDS FOR THE YEAR ENDED APRIL 30

AssetsI yr.3 yr.YTDCalendar year returns
FundMER(in $ mil.)returnreturn(to April 30)2011201020092008
Pimco Monthly Income1.25162.713.64% 6.94%
Standard Life Int'l Bond-A2.1145.410.75%1.90%-1.42%10.96%0.87%-11.95%31.27%
CIBC Global Bond2.0799.79.74%7.39%0.87%9.03%6.20%1.75%12.10%
Renaissance Global Bond2.0295.29.55%6.13%0.88%8.67%4.57%0.46%9.94%
iShares U.S. Corporate CAD-Hedged0.3073.09.29%2.14%10.39%
iShares JPM USD EM Bond CAD Hedged0.7215.09.17%4.26%
Scotia Global Bond2.1018.78.76%-0.15%-4.18%10.25%1.24%-14.91%37.23%
TD Global Bond-I2.26135.28.62%2.15%-2.13%7.65%0.20%-3.12%27.46%
DFA Investment Grade Fixed Income-A1.50n/a8.20%5.74%0.71%7.89%6.04%
RBC Global Corporate Bond1.73805.78.05%8.50%3.03%6.21%6.78%12.67%0.61%
Altamira Global Bond1.80176.27.79%-0.55%-2.50%8.20%-0.53%-13.61%32.47%
CIBC Global Bond Index1.1441.07.70%0.06%-2.26%8.44%-0.02%-14.44%37.53%
AGF Global Aggregate Bond2.023.97.59%1.71%5.42%
RBC Global Bond1.762058.36.76%4.43%1.90%4.50%2.96%3.44%5.06%
Mackenzie Sentinel Global Bond2.17129.36.64%2.73%1.13%1.47%-0.15%6.29%5.05%
S&P/TSX Total Return-9.37%12.70%3.77%-8.71%17.61%35.06%-33.00%
S&P 500 Composite Total Return Idx($Cdn)9.15%12.17%8.72%4.42%9.35%8.08%-21.92%
Source: Globe Investor, BlackRock Canada, Pimco Canada

© 2007 The Globe and Mail. All rights reserved.

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