PIMCO Fundamental IndexPLUS Absolute Return Fund

Kenster1_GlobalValue

Anyone invest in this fund (PIMCO Fundamental IndexPLUS AR Fund)? Thoughts? Your explanation/understanding on how it works? 5-year returns have been great (35% annualized) and a fund that is managed by Bill Gross but a bit under the radar.

"The Fundamental IndexPLUS® AR Fund is an innovative equity fund that combines active and passive management. Designed as an alternative to passive, capitalization-weighted equity indexes, the fund employs two independent sources of excess return potential - exposure to the fundamentally weighted Enhanced RAFITM Index via derivative instruments and an actively managed fixed income portfolio with an absolute return orientation. The fundamental indexing methodology was developed by Research Affiliates, LLC to address the structural return drag caused by systematic overweighting of overpriced stocks and underweighting of underpriced stocks in cap-weighted indices. An actively managed, fixed income portfolio with an absolute return orientation serves as collateral for the equity exposure, and offers the potential for excess returns relative to the Enhanced RAFI® US Large Index."

Fund Card
https://investments.pimco.com/ShareholderCommunications/External Documents/pimco_fundamental_indexplus_ar_pf4043i.pdf

Fund Fact Sheet
https://investments.pimco.com/ShareholderCommunications/External Documents/Fundamental IndexPLUS AR Fund Institutional.pdf

Monthly Commentary
https://investments.pimco.com/ShareholderCommunications/External Documents/PIMCO_Fundamental_IndexPLUS_AR_Monthly_Fund_Commentary.pdf

MourningStars

Own this fund and three other funds that utilize exposure to different RAFI's via derivatives for the equity portion ( USA Small Cap, International, and Emerging Market) with PIMCO managing the remaining assets for absolute return in bonds ( duration -3 to 8 years.) Not sure I will stay at the party for the EM version but the others are keepers. Will limit the total invested via these funds to 20% of the portfolio. Concerned (probably unfounded but nagging and persistent none the less) about counter party risk for the derivatives. Prefer the value flavor of a RAFI to cap weighted indexes. The ability of PIMCO to delivery a return in excess of the increased fund fees as opposed to just investing in the corresponding Vanguard index made the decision for me, and in spite of the derivative aspect. I'm one of those guys who invests with hope rather than experience in that I shun low cost, cap weighted indexes.

Kaspa

This fund was mentioned in a link Ted posted couple of days back and I am considering investing it in it. One thing that bothers me about this absolute return fund is its dismal performance in 2008, which makes me think it is essentially increasing beta and can outperform only in bull markets.

expatsp

Its 2008 performance was dismal but everyone's was. It was 6 p.p. worse than the index in 2008 then 28 p.p. better the year after. So the performance still looks very good to me if you're investing for at least five years. In fact it looks like it does best when a bear market is part of the cycle. It had a similar pattern in 2011 and 2012: mild underperformance when the market is down and massive overperformance when it recovers. I would like to understand how it works before investing though. How do we suggest a fund to David for profiling?

Kenster1_GlobalValue

Hmmm...definitely interesting comments and a fund to keep an eye out for to better understand how it behaves.

GlobalAl

Keep in mind the tax consequences (if it's held in a non-qualified account) as the income distributions on this fund are very high compared to an average index fund/ETF. Tax-adjusted returns, according to Morningstar, bring this fund's performance numbers back down to Earth a bit.

jeffop

Check out http://seekingalpha.com/article/1553192-better-investing-through-leverage for more on PXTIX