PIMCO this week launched its Select U.K. Income Bond Fund that will invest in high-quality instruments across a broad range of fixed income sectors.
The fund is available as part of PIMCO Select, which is a UCITS III fund range that offers U.K. investors PIMCO's insurance, savings and defined contribution schemes.
About 50% of the new fund’s assets are in ABS and MBS, 30% in investment grade credit, with the largest individual weights to U.K. bonds, 10% in high yield and 10% in emerging market debt, according to market reports.
The UCITS III fund is managed by Mike Amey, managing director and portfolio manager responsible for sterling portfolios.
Amey said that a number of securities within the residential mortgage and commercial markets have seen their investor base eroded to such a degree that there is an imbalance between the supply and demand of paper.
"An imbalance of investors relative to the supply of bonds is classically where you get good opportunities to invest in high quality assets with relatively low capital risk," he explained.
The fund has a target annual income distribution of 5% and seeks to surpass other income-generating investments like government bonds, certificates, cash and equity funds on a risk-adjusted basis. It will maintain an average duration ranging from 1-8 years, allowing flexibility in a rising interest rate environment.
“Growth in the U.K. is expected to remain subdued for a number of years, which is likely to encourage the Bank of England to keep interest rates low," Amey said. "Traditional sources of income derived from deposit rates, government bonds and equity income funds are unlikely to enhance income growth in the current economic landscape."
He added that there is more of a need to identify alternative sources of income through ‘safe’ higher yielding assets in this environment.
In other news about the firm, ASR sister publication National Mortgage News executive editor Paul Muolo reported that PIMCO has received commitments of up to $1 billion to invest in Jumbo mortgages as part of a conduit project which carries the working name of 'Project Bravo,' according to secondary market officials.
One source who said he was briefed on PIMCO's plans contends, "They've already raised the $1 billion."
At press time PIMCO had not returned a telephone call about the matter.
With expectations rising that the White House and Congress will allow the GSE loan limit to fall to $625,500 by October, private equity and investment banking firms are looking to enter the space.
Just two Jumbo mortgage bonds have come to market during the past 10 months. Both were issued by Redwood Trust.