Alfred Murata believes the United States represents the most attractive area for global fixed-income investing, particularly for mortgage-backed securities.
"The most important thing is to look at projected returns under a wide variety of scenarios," says Murata, managing director at Newport Beach, California-based PIMCO, and lead manager of the $5.2-billion PIMCO Monthly Income. "Although we find the most attractive areas are in the U.S, we are still looking around the globe for opportunities. It depends not only on the fundamentals, but also the valuations."
Murata notes that he is not constrained by the type of fixed-income security, nor the country in which it's issued, nor its credit rating. At the same time, he has an extensive team that can choose from a global market valued at close to US$100 trillion. "It's important not only to have the flexibility, but also the resources to analyze these securities and to transact in them," says Murata, adding that the fixed-income team has more than 200 portfolio managers and analysts located in several financial centres around the world.
Currently, the U.S. represents about two-thirds of the fund, largely because of the breadth of its market. One area that has attracted Murata's attention is the so-called non-agency mortgage-backed security (MBS) sector, which accounts for more than one-quarter of the fund. "The U.S. non-agency market is US$800 billion in size. What's important is being able to carefully analyze each of these securities, of which there are about 50,000 in existence," says Murata, adding that the PIMCO team analyzes the loans and projects that will happen with housing prices in different locations in the U.S., on a zip code by zip code basis.
The driving factors behind this focus is a bet on the recovery in the housing sector coupled with the fact that non-agency MBSs are available at a substantial discount. "We are able to buy them at 75 cents on the dollar. You don't need to get to par to have a good investment," says Murata. "We expect many securities to get to 85 cents on the dollar -- based on a scenario where housing prices go up 4% annually on a national basis."
And if economic conditions exceed expectations, that scenario would benefit unitholders even more. "Instead of getting 85 cents on the dollar, we could get 90 cents -- which should increase the yield."
While Murata notes that the fund's objective is to generate income -- the distribution yield is about 4% per year -- it is also aimed at maintaining the stability of the net asset value. "The main thing is not just generating as much income as possible, but protecting on the downside," he says. "We are trying to achieve both at the same time."
 |
|
 |
|
| Alfred Murata | |
|
|
|
|
|
A Toronto native, Murata brought a diverse academic background when he entered the investment-management industry in 2001. After he graduated in 1996 from McGill University with a BSc in computer science, he went to Stanford University where he studied both law, and engineering economic systems and operations research. In 2004, he completed a PhD in engineering and earned a Juris Doctor in law.
Finance and engineering, says Murata, have much in common. "With finance, you try to maximize your returns, while minimizing the risks. It's somewhat similar to solving an engineering problem where you try to build a bridge that is as strong as possible with as little material as possible," he says, adding that a law background helps in analyzing complex financial documents.
In 2001, Murata joined PIMCO as a corporate-credit analyst covering airlines and health-care companies. After about a year, he worked on mortgage-backed securities. Since then, he has assisted on a wide variety of fixed-income strategies. In collaboration with Dan Ivascyn, deputy chief investment officer, Murata has managed since its inception in 2007 the US$33-billion PIMCO Income, which is the model for the Canadian fund.
Launched in January 2011, PIMCO Monthly Income has a 5-star Morningstar Rating for risk-adjusted returns, and has outperformed the median return in the Global Fixed Income category over one, two and three years. For the three years ended April 30, the fund returned an annualized 13.2%, compared with 5.3% for the median.
Murata and his team rely on a blend of security analysis and big-picture thinking that is led by Bill Gross and the investment committee at PIMCO. Day-to-day management of the portfolio is left to Murata and Ivascyn.
Slightly more than 50% of the portfolio is focused on the potential upside, through higher-yield securities and non-agency MBSs, senior secured bank loans and emerging-market debt. However, in the event economic growth falters, there is downside protection in a slightly smaller portion comprised of Australian interest-rate swaps and Fannie Mae-guaranteed MBSs.
Intriguingly, Murata notes that the portfolio positioning has been consistent since the U.S. fund's launch. "This overall theme is still in place, although on the margins there have been some shifts between the two buckets. The concentration on agency-backed MBSs has declined over time as the valuations have not been as compelling."
:quality(80)/cloudfront-us-east-1.images.arcpublishing.com/morningstar/5WSHPTEQ6BADZPVPXVVDYIKL5M.png)
:quality(80)/cloudfront-us-east-1.images.arcpublishing.com/morningstar/Q3KIND5VXRCNHHH6JQHCCYBSSA.png)
