HomeMy WebLinkAboutReports - 2020.10.02 - 33709Oakland County ERSDefined Benefit Plan
Multisector Fixed Income Manager Analysis
June 30, 2020
Introduction
As of 6/30/2020
Purpose for this Manager Evaluation Report
Investment Options for this Manager Evaluation Report
Strategy Name
Apollo Total Return Fund
Loomis Sayles Multisector Full Discretion
OHA Diversified Credit Strategies Fund
PIMCO Diversified Income Institutional (PDIIX)
Franklin Templeton Global Bond Plus
Vehicle Management Fee Investment Minimum
CF $5,000,000Share Class A-1
(1-Year Soft Lock)
1.00% on first $20M
0.90% on next $80M
0.85% on next $100M
0.80% over $200M
Share Class A-2
(2-Year Hard Lock)
0.90% on first $20M
0.80% on next $80M
0.75% on next $100M
0.70% over $200M
CF 0.57% on first $15M
0.45% on next $15M
0.30% over $30M
$5,000,000
CF Base Management Fee: 0.65%
Performance Fee: 15% over a hurdle of L+4%, subject to high water mark
Performance Fee Cap: 0.35% per year with carryforward
$10,000,000
MF
CF
0.75%
0.47% on first $50M
0.36% on next $50M
0.30% over $100M
$1,000,000
$10,000,000
Loomis, Sayles & Company
Firm Name
Apollo Global Management
Oak Hill Advisors
Pacific Investment Management Company
Franklin Templeton Investments
This search is being conducted to identify replacement candidates for the Templeton Global Return Fund. The managers profiled in this report have been rigorously researched by AndCo and are prudent options for the opportunistic
fixed income mandate.
1
As of 6/30/2020
Asset Class Overview
Benchmark and Peer Group
This Multisector Credit fixed income search report will use the following benchmark and peer group:
Index – Bloomberg Barclays Multiverse Index: Represents the union of the Global Aggregate Index and Global High-Yield Index. The index consists of over 23,000 securities that are fixed-rate, taxable bonds meeting basic criteria
on term to maturity and minimum amount outstanding. Foreign currencies must be freely tradable and hedgeable.
Morningstar Category – Multisector Bond: Multisector bond portfolios seek income by diversifying their assets among several fixed-income sectors, usually U.S. government obligations, U.S. corporate bonds, foreign bonds, and
high-yield U.S. debt securities. These funds typically hold 35% to 65% of bond assets in securities that are not rated or are rated by a major agency such as Standard & Poor's or Moody's at the level of BB (considered speculative for
taxable bonds) and below.
The Multisector Credit fixed income category can play an important role in a diversified fixed income portfolio. These strategies offer investors attractive risk/return trade-offs across a wide opportunity set of credit with the added
benefit of allowing managers to tactically rotate through sectors when perceived relative value diminishes or when risks are deemed high. As a result of the approach, the category generally has a low correlation to traditional fixed
income categories while offering the added advantage of potentially limiting drawdowns.
The Multisector Credit fixed income category is defined as having the flexibility to invest in the widest range of opportunities across sectors, credit ratings, term structures, geography and currencies. Unlike traditional fixed income
strategies, where interest rate sensitivity tends to be a dominant source of returns, multisector credit strategies tend to be less sensitive to interest rate volatility and more exposed to credit risk.
Role within a Portfolio
Definition and Characteristics
2
Investment Option Comparison
3
Firm and Investment Option Information
Firm Information
Year Founded
US Headquarters Location
Number of Major Global Offices
Year Began Managing Ext. Funds
Firm AUM ($ M)
Ownership Type
Largest Owner (Name)
Employee Ownership (%)
Qualify as Emerging Manager?
1/1/1990
New York, NY
15
1/1/1990
331,000
Publicly Traded
L. Black, J. Harris, M. Rowan
50
No
1/1/1926
Boston, MA
5
1/1/1926
271,895
Subsidiary
NGAM
0
No
1/1/1991
New York, NY
6
1/1/1991
38,893
Independent
OHA Employee Partners
68
No
1/1/1971
Newport Beach, CA
12
1/1/1971
1,780,000
Subsidiary
Allianz Asset Management
0
No
Apollo
Total
Return
Fund
Loomis
Sayles
Multisector
Full
Discretion
OHA
Diversified
Credit
Strategies
Fund
PIMCO
Diversified
Income I
Strategy Information
Inception Date
Open/Closed
Primary Benchmark
Secondary Benchmark
Peer Universe
Outperformance Estimate (%)
Tracking Error Estimate (%)
Strategy AUM ($ M)
Strategy AUM as % Firm Assets
Investment Approach - Primary
Investment Approach - Secondary
3/1/2014
Open
N/A
N/A
Multisector Bond
LIBOR + 6-8
N/A
7,700
2
Bottom-up
Fundamental
1/1/1989
Open
BBgBarc U.S. Govt/Credit
N/A
Multisector Bond
2.5-3.5
N/A
27,603
10
Bottom-up
Fundamental
8/13/2012
Open
50/50 HY / Bank Loan Custom Index
N/A
Multisector Bond
1
N/A
3,419
9
Bottom-up
Fundamental
9/1/2003
Open
BBgBarc Global Credit
Custom
Multisector Bond
1-2
2-3
4,421
0
Combination
Fundamental
The source of data and figures provided is generally the respective managers. Certain data represents AndCo's view and could differ from the manager's interpretation. The most current AUM of each
strategy may therefore differ from what is currently stated.
4
Firm and Investment Option Information
Team Information
Decision Making Structure
Number of Decision Makers
Names of Decision Makers
Date Began Managing Strategy
Date Began with Firm
Number of Products Managed by Team
Number of Investment Analysts
Investment Analyst Team Structure
Committee
3
S. Mintun, D. Sowerby, T. Kennedy
2009, 2017, 2016
2008, 2017, 2015
1
1
Generalists
Team
3
M. Eagan, B. Kennedy, E. Stokes
2001-2016
1988-1997
7
72
Combination
PM-Led
4
4 PMs; Led by A. Kertzner
2012-2015
2001-2015
1
90
Sector/Industry Specialists
Team
4
4 Named PMs
2016
1998-2013
3
128
Sector/Industry Specialists
Apollo
Total
Return
Fund
Loomis
Sayles
Multisector
Full
Discretion
OHA
Diversified
Credit
Strategies
Fund
PIMCO
Diversified
Income I
Portfolio Construction Information
Broad Style Category
Style Bias
Duration Constraint Type
Duration Constraint (%)
Country/Region Constraint Type
Typical Country/Region Constraints (%)
Maximum Emerging Market Exposure (%)
Sector Constraint Type
Sector Constraints (%)
Typical Sector/s Overweight
Typical Sector/s Underweight
Typical Number of Holdings
Average Full Position Size (%)
Maximum Position Size (%)
Annual Typical Asset Turnover (%)
Annual Typical Name Turnover (%)
Max <BBB Credit (%)
Maximum Cash Allocation (%)
Currency Hedged?
Derivatives Used?
Value
Relative Value
N/A
N/A
None
N/A
25
Combination
3x Relative, 25 absolute
N/A
N/A
35-45
3
8
20-30
15-25
N/A
15
No
Yes
Multisector
Relative Value
Relative
+/-5 years
Absolute
40
50
Absolute
25 (Industry)
N/A
N/A
500-700
0.3-0.5
5
20-35
N/A
20-50
10
No
No
Multisector
Relative Value
N/A
N/A
N/A
N/A
N/A
Absolute
20 (Industry)
N/A
N/A
100-150
1
5
100-125
100-125
100
N/A
Yes
Yes
Multisector Bond
Relative Value
Absolute
3 - 8 years
N/A
N/A
100
N/A
N/A
Credit
Varies
1,100
1-3
25
125
N/A
10% max below B
N/A
Yes
Yes
The source of data and figures provided is generally the respective managers. Certain data represents AndCo's view and could differ from the manager's interpretation. The most current AUM of each
strategy may therefore differ from what is currently stated.
5
Quantitative Review
Returns are Net of Fees.
Performance data shown prior to fund's inception date represents extended performance of an older share class of the same strategy.
6
As of 6/30/2020
Trailing Performance
Peer Group (5-95%): Separate Accounts - U.S. - Multisector Bond
1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 Years-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
ReturnApollo Total Return Fund Loomis Sayles Multisector Full Discretion OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I Franklin Templeton Global Bond Plus BBgBarc Multiverse TR USD
1 Year Rank 2 Years Rank 3 Years Rank 4 Years Rank 5 Years Rank 6 Years Rank 7 Years Rank
Apollo Total Return Fund
Loomis Sayles Multisector Full Discretion
OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I
Franklin Templeton Global Bond Plus
BBgBarc Multiverse TR USD
0.72 3.47 3.73 4.61 4.17 4.05
-0.14 2.67 2.61 4.57 3.75 3.20 4.36
9.46 8.58 6.20 6.65 5.45 4.65 5.68
1.98 5.93 4.46 5.50 5.53 4.48 5.24
3.84 4.92 3.72 2.42 3.63 1.76 2.59
-7.96 -1.09 -1.26 0.93 0.17 -0.09 0.92
67 59 46 35 47 29
3 4 4 3 13 16 17
73 76 67 39 62 56 40
57 30 29 19 13 19 20
100 98 98 96 100 100 98
38 42 48 88 64 88 85
7
Calendar Year Performance
As of 6/30/2020
Peer Group (5-95%): Separate Accounts - U.S. - Multisector Bond
YTD 2019 2018 2017 2016 2015 2014 2013-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
ReturnApollo Total Return Fund Loomis Sayles Multisector Full Discretion OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I Franklin Templeton Global Bond Plus BBgBarc Multiverse TR USD
YTD Rank 2019 Rank 2018 Rank 2017 Rank 2016 Rank 2015 Rank 2014 Rank 2013 Rank
Apollo Total Return Fund
Loomis Sayles Multisector Full Discretion
OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I
Franklin Templeton Global Bond Plus
BBgBarc Multiverse TR USD
-2.88 9.85 1.81 6.42 6.29 2.57
-3.84 11.19 -0.95 5.79 13.51 -2.70 2.64 7.66
-0.88 12.78 -0.99 8.85 10.56 1.26 2.96 -0.91
7.19 9.17 -0.48 8.15 9.83 -4.63 6.92 3.45
-5.94 0.91 2.08 1.98 6.15 -4.03 1.86 2.51
2.53 7.13 -1.36 7.69 2.84 -3.29 0.48 -2.19
75 48 5 43 56 6
1 49 34 16 21 94 10 26
81 36 47 55 6 84 74 5
56 18 48 11 16 12 70 84
92 100 4 98 59 89 84 43
26 84 59 23 94 84 93 93
8
Rolling Excess Return Analysis
As of 6/30/2020
Rolling Excess Returns
Time Period: 7/1/2013 to 6/30/2020
Rolling Window: 1 Year 3 Months shift Calculation Benchmark: BBgBarc Multiverse TR USD
09 12
2015
03 06 09 12
2016
03 06 09 12
2017
03 06 09 12
2018
03 06 09 12
2019
03 06 09 12
2020
03 06
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
Excess ReturnRolling Excess Return Rankings
Time Period: 7/1/2013 to 6/30/2020
Rolling Window: 1 Year 3 Months shift Calculation Benchmark: BBgBarc Multiverse TR USD
1st to 25th Percentile 26th to Median 51st to 75th Percentile 76th to 100th Percentile
09 12
2015
03 06 09 12
2016
03 06 09 12
2017
03 06 09 12
2018
03 06 09 12
2019
03 06 09 12
2020
03 06
100.0
75.0
50.0
25.0
0.0
Apollo Total Return Fund Loomis Sayles Multisector Full Discretion OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I Franklin Templeton Global Bond Plus BBgBarc Multiverse TR USDExcess Return
9
Rolling Risk Analysis
As of 6/30/2020
Rolling Standard Deviation
Time Period: 7/1/2013 to 6/30/2020
Rolling Window: 1 Year 3 Months shift Calculation Benchmark: BBgBarc Multiverse TR USD
09 12
2015
03 06 09 12
2016
03 06 09 12
2017
03 06 09 12
2018
03 06 09 12
2019
03 06 09 12
2020
03 06
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
Std DevRolling Standard Deviation Rankings
Time Period: 7/1/2013 to 6/30/2020
Rolling Window: 1 Year 3 Months shift Calculation Benchmark: BBgBarc Multiverse TR USD
1st to 25th Percentile 26th to Median 51st to 75th Percentile 76th to 100th Percentile
09 12
2015
03 06 09 12
2016
03 06 09 12
2017
03 06 09 12
2018
03 06 09 12
2019
03 06 09 12
2020
03 06
100.0
75.0
50.0
25.0
0.0
Apollo Total Return Fund Loomis Sayles Multisector Full Discretion OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I Franklin Templeton Global Bond Plus BBgBarc Multiverse TR USDStd Dev
10
Correlation Matrix
As of 6/30/2020
Correlation Matrix (Excess Returns vs. BBgBarc Multiverse TR USD)
Time Period: 7/1/2015 to 6/30/2020
Calculation Benchmark: BBgBarc Multiverse TR USD
1 2 3 4 5 6
1.00
0.74 1.00
0.89 0.82 1.00
0.85 0.85 0.90 1.00
0.63 0.57 0.54 0.62 1.00
1.00
1 Apollo Total Return Fund
2 Loomis Sayles Multisector Full Discretion
3 OHA Diversified Credit Strategies Fund
4 PIMCO Diversified Income I
5 Franklin Templeton Global Bond Plus
6 BBgBarc Multiverse TR USD
BBgBarc Multiverse TR USD
BBgBarc Multiverse TR USD
BBgBarc Multiverse TR USD
BBgBarc Multiverse TR USD
BBgBarc Multiverse TR USD
BBgBarc Multiverse TR USD
Correlation Matrix
Time Period: 7/1/2015 to 6/30/2020
1 2 3 4 5 6
1.00
0.77 1.00
0.95 0.83 1.00
0.88 0.90 0.90 1.00
0.43 0.39 0.49 0.48 1.00
0.40 0.64 0.38 0.60 -0.03 1.00
1 Apollo Total Return Fund
2 Loomis Sayles Multisector Full Discretion
3 OHA Diversified Credit Strategies Fund
4 PIMCO Diversified Income I
5 Franklin Templeton Global Bond Plus
6 BBgBarc Multiverse TR USD
11
Rolling Correlation Analysis
As of 6/30/2020
Rolling Correlation
Time Period: 7/1/2013 to 6/30/2020
Rolling Window: 1 Year 3 Months shift Calculation Benchmark: BBgBarc Multiverse TR USD
09 12
2015
03 06 09 12
2016
03 06 09 12
2017
03 06 09 12
2018
03 06 09 12
2019
03 06 09 12
2020
03 06
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
CorrelationRolling Correlation Rankings
Time Period: 7/1/2013 to 6/30/2020
Rolling Window: 1 Year 3 Months shift Calculation Benchmark: BBgBarc Multiverse TR USD
1st to 25th Percentile 26th to Median 51st to 75th Percentile 76th to 100th Percentile
09 12
2015
03 06 09 12
2016
03 06 09 12
2017
03 06 09 12
2018
03 06 09 12
2019
03 06 09 12
2020
03 06
100.0
75.0
50.0
25.0
0.0
Apollo Total Return Fund Loomis Sayles Multisector Full Discretion OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I Franklin Templeton Global Bond Plus BBgBarc Multiverse TR USDCorrelation
12
Risk and Reward
As of 6/30/2020
Risk-Reward: 3-Year
Time Period: 7/1/2017 to 6/30/2020
Calculation Benchmark: BBgBarc Multiverse TR USD
Std Dev
0.0 2.0 4.0 6.0 8.0 10.0 12.0
-3.0
-1.0
1.0
3.0
5.0
7.0
9.0
ReturnRisk-Reward: 7-Year
Time Period: 7/1/2013 to 6/30/2020
Calculation Benchmark: BBgBarc Multiverse TR USD
Std Dev
0.0 2.0 4.0 6.0 8.0 10.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
ReturnRisk-Reward: 1-Year
Time Period: 7/1/2019 to 6/30/2020
Calculation Benchmark: BBgBarc Multiverse TR USD
Std Dev
0.0 3.0 6.0 9.0 12.0 15.0 18.0 21.0
-11.0
-7.0
-3.0
1.0
5.0
9.0
13.0
ReturnRisk-Reward: 5-Year
Time Period: 7/1/2015 to 6/30/2020
Calculation Benchmark: BBgBarc Multiverse TR USD
Std Dev
0.0 2.0 4.0 6.0 8.0 10.0
-1.0
1.0
3.0
5.0
7.0
ReturnApollo Total Return Fund Loomis Sayles Multisector Full Discretion OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I Franklin Templeton Global Bond Plus BBgBarc Multiverse TR USD
13
Up and Down Market Capture
As of 6/30/2020
Up and Down Market Capture: 3-Year
Time Period: 7/1/2017 to 6/30/2020
Calculation Benchmark: BBgBarc Multiverse TR USD
Down Capture Ratio
-20.0 10.0 40.0 70.0 100.0 130.0
-40.0
-10.0
20.0
50.0
80.0
110.0
140.0
Up Capture RatioUp and Down Market Capture: 7-Year
Time Period: 7/1/2013 to 6/30/2020
Calculation Benchmark: BBgBarc Multiverse TR USD
Down Capture Ratio
-40.0 -10.0 20.0 50.0 80.0 110.0 140.0
-10.0
10.0
30.0
50.0
70.0
90.0
110.0
130.0
Up Capture RatioUp and Down Market Capture: 1-Year
Time Period: 7/1/2019 to 6/30/2020
Calculation Benchmark: BBgBarc Multiverse TR USD
Down Capture Ratio
0.0 50.0 100.0 150.0 200.0 250.0 300.0 350.0
-100.0
-50.0
0.0
50.0
100.0
150.0
200.0
250.0
Up Capture RatioUp and Down Market Capture: 5-Year
Time Period: 7/1/2015 to 6/30/2020
Calculation Benchmark: BBgBarc Multiverse TR USD
Down Capture Ratio
-60.0 -30.0 0.0 30.0 60.0 90.0 120.0 150.0
-40.0
-10.0
20.0
50.0
80.0
110.0
140.0
Up Capture RatioApollo Total Return Fund Loomis Sayles Multisector Full Discretion OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I Franklin Templeton Global Bond Plus BBgBarc Multiverse TR USD
14
Multi Statistic Analysis
As of 6/30/2020
Information Ratio 1 Yr
-1.4
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
-0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Tracking Error 1 YR
1.5
2.3
3.0
3.8
4.5
5.3
6.0
6.8
7.5
8.3
9.0
9.8
10.5
11.3
12.0
12.8
13.5Tracking ErrorSharpe Ratio 1 Yr
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
-0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Sharpe Ra
t
i
o
(
a
r
i
t
h
)
Alpha 1 Yr
-10.5
-9.8
-9.0
-8.3
-7.5
-6.8
-6.0
-5.3
-4.5
-3.8
-3.0
-2.3
-1.5
-0.8
0.0
0.8
1.5
2.3
3.0
3.8
4.5
Apollo Total Return Fund
Loomis Sayles Multisector Full Discretion
OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I
Franklin Templeton Global Bond Plus
BBgBarc Multiverse TR USD
Std Dev 1 Yr
3.0
3.8
4.5
5.3
6.0
6.8
7.5
8.3
9.0
9.8
10.5
11.3
12.0
12.8
13.5
14.3
15.0
15.8
16.5
Time Period: 7/1/2019 to 6/30/2020
Std Dev Rank Sharpe
Ratio Rank Alpha Rank Information
Ratio Rank Tracking
Error Rank
Apollo Total Return Fund
Loomis Sayles Multisector Full Discretion
OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I
Franklin Templeton Global Bond Plus
BBgBarc Multiverse TR USD
10.70 -0.05 -4.81 -0.41 7.53
8.76 0.94 3.64 1.12 4.99
16.40 -0.09 -6.96 -0.30 13.35
10.35 0.07 -3.58 -0.26 7.06
8.30 -1.11 -9.97 -1.34 8.79
4.61 0.56 0.00 0.00
35 67 67 65 33
58 14 9 11 66
5 68 81 58 5
39 57 58 56 39
61 100 94 98 24
85 29 35 100
15
Multi Statistic Analysis
As of 6/30/2020
Information Ratio 3 Yr
-0.7
-0.6
-0.5
-0.4
-0.3
-0.2
-0.1
-0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Tracking Error 3 Yr
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5Tracking ErrorSharpe Ratio 3 Yr
-0.5
-0.4
-0.3
-0.2
-0.1
-0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Sharpe Ra
t
i
o
(
g
e
o
)
Alpha 3 Yr
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Apollo Total Return Fund
Loomis Sayles Multisector Full Discretion
OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I
Franklin Templeton Global Bond Plus
BBgBarc Multiverse TR USD
Std Dev 3 Yr
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
Time Period: 7/1/2017 to 6/30/2020
Std Dev Rank Sharpe
Ratio Rank Alpha Rank Information
Ratio Rank Tracking
Error Rank
Apollo Total Return Fund
Loomis Sayles Multisector Full Discretion
OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I
Franklin Templeton Global Bond Plus
BBgBarc Multiverse TR USD
6.22 0.33 0.52 0.00 5.33
5.34 0.84 2.41 0.71 3.51
9.56 0.10 -0.95 -0.13 8.42
6.50 0.43 0.70 0.15 4.85
6.60 -0.45 -2.93 -0.66 7.49
4.00 0.50 0.00 0.00
41 48 45 46 31
61 9 5 3 75
5 76 72 61 5
38 43 40 31 43
36 97 95 95 10
81 40 54 100
16
Multi Statistic Analysis
As of 6/30/2020
Information Ratio 5 Yr
-0.5
-0.4
-0.3
-0.2
-0.1
-0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Tracking Error 5 Yr
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5Tracking ErrorSharpe Ratio 5 Yr
-0.2
-0.1
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
Sharpe Ra
t
i
o
(
a
r
i
t
h
)
Alpha 5 Yr
-1.3
-1.0
-0.8
-0.5
-0.3
0.0
0.3
0.5
0.8
1.0
1.3
1.5
1.8
2.0
2.3
2.5
2.8
3.0
3.3
Apollo Total Return Fund
Loomis Sayles Multisector Full Discretion
OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I
Franklin Templeton Global Bond Plus
BBgBarc Multiverse TR USD
Std Dev 5 Yr
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
Time Period: 7/1/2015 to 6/30/2020
Std Dev Rank Sharpe
Ratio Rank Alpha Rank Information
Ratio Rank Tracking
Error Rank
Apollo Total Return Fund
Loomis Sayles Multisector Full Discretion
OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I
Franklin Templeton Global Bond Plus
BBgBarc Multiverse TR USD
4.93 0.61 1.98 0.10 5.21
5.37 0.80 2.39 0.43 4.25
8.09 0.32 1.15 0.02 7.61
5.85 0.75 2.48 0.39 4.82
6.57 -0.15 -0.68 -0.43 8.10
4.55 0.54 0.00 0.00
59 44 29 48 32
41 33 18 13 63
6 82 53 63 6
37 36 17 14 43
25 97 91 94 3
68 51 85 100
17
Multi Statistic Analysis
As of 6/30/2020
Information Ratio 7 Yr
-0.3
-0.2
-0.1
-0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Tracking Error 7 Yr
2.8
3.0
3.3
3.5
3.8
4.0
4.3
4.5
4.8
5.0
5.3
5.5
5.8
6.0
6.3
6.5
6.8
7.0
7.3Tracking ErrorSharpe Ratio 7 Yr
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
Sharpe Ra
t
i
o
(
a
r
i
t
h
)
Alpha 7 Yr
-0.3
0.0
0.3
0.5
0.8
1.0
1.3
1.5
1.8
2.0
2.3
2.5
2.8
3.0
3.3
3.5
3.8
4.0
4.3
Apollo Total Return Fund
Loomis Sayles Multisector Full Discretion
OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I
Franklin Templeton Global Bond Plus
BBgBarc Multiverse TR USD
Std Dev 7 Yr
2.8
3.0
3.3
3.5
3.8
4.0
4.3
4.5
4.8
5.0
5.3
5.5
5.8
6.0
6.3
6.5
6.8
7.0
7.3
Time Period: 7/1/2013 to 6/30/2020
Std Dev Rank Sharpe
Ratio Rank Alpha Rank Information
Ratio Rank Tracking
Error Rank
Apollo Total Return Fund
Loomis Sayles Multisector Full Discretion
OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I
Franklin Templeton Global Bond Plus
BBgBarc Multiverse TR USD
5.03 0.96 3.44 0.79 3.92
7.04 0.50 2.54 0.26 6.68
5.48 0.80 3.03 0.60 4.43
5.99 0.01 0.12 -0.23 7.24
4.39 0.40 0.00 0.00
38 29 15 10 62
5 73 37 67 7
32 47 29 27 43
22 98 91 93 5
57 81 91 100
18
Batting Average and Drawdown
As of 6/30/2020
Apollo Total Return Fund Loomis Sayles Multisector Full Discretion OHA Diversified Credit Strategies Fund
PIMCO Diversified Income I Franklin Templeton Global Bond Plus BBgBarc Multiverse TR USD
Drawdown
Time Period: 7/1/2013 to 6/30/2020
Source Data: Monthly Return
12/2013 6/2014 12/2014 6/2015 12/2015 6/2016 12/2016 6/2017 12/2017 6/2018 12/2018 6/2019 12/2019 6/2020
-16.0
-14.0
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
Batting Average
Source Data: Monthly Return Calculation Benchmark: BBgBarc Multiverse TR USD
1 Year 3 Years 5 Years 7 Years
0.0
7.5
15.0
22.5
30.0
37.5
45.0
52.5
60.0
67.5
Batting Average
19
MPT Statistics
As of 6/30/2020
MPT Statistics: 1-Year
Time Period: 7/1/2019 to 6/30/2020 Calculation Benchmark: BBgBarc Multiverse TR USD
Apollo
Total
Return
Fund
Loomis
Sayles
Multisector
Full
Discretion
OHA
Diversified
Credit
Strategies
Fund
PIMCO
Diversified
Income I
Franklin
Templeton
Global
Bond
Plus
BBgBarc
Multiverse
TR USD
Return
Excess Return
Std Dev
Beta
Tracking Error
Sharpe Ratio
Alpha
Information Ratio
Batting Average
Up Capture Ratio
Down Capture Ratio
0.72
-3.12
10.70
1.84
7.53
-0.05
-4.81
-0.41
58.33
106.99
175.80
9.46
5.61
8.76
1.73
4.99
0.94
3.64
1.12
66.67
178.32
128.18
-0.14
-3.98
16.40
2.62
13.35
-0.09
-6.96
-0.30
58.33
143.92
257.76
-7.96
-11.80
8.30
0.30
8.79
-1.11
-9.97
-1.34
33.33
-62.88
60.78
1.98
-1.86
10.35
1.83
7.06
0.07
-3.58
-0.26
66.67
121.20
174.99
3.84
0.00
4.61
1.00
0.00
0.56
0.00
100.00
100.00
100.00
MPT Statistics: 3-Year
Time Period: 7/1/2017 to 6/30/2020 Calculation Benchmark: BBgBarc Multiverse TR USD
Return
Excess Return
Std Dev
Beta
Tracking Error
Sharpe Ratio
Alpha
Information Ratio
Batting Average
Up Capture Ratio
Down Capture Ratio
3.73
0.02
6.22
0.81
5.33
0.33
0.52
0.00
55.56
59.66
23.96
6.20
2.48
5.34
1.02
3.51
0.84
2.41
0.71
58.33
104.59
51.32
4.46
0.75
6.50
1.08
4.85
0.43
0.70
0.15
63.89
88.36
60.83
2.61
-1.10
9.56
1.13
8.42
0.10
-0.95
-0.13
55.56
64.21
58.80
-1.26
-4.98
6.60
0.10
7.49
-0.45
-2.93
-0.66
41.67
-18.56
-4.51
3.72
0.00
4.00
1.00
0.00
0.50
0.00
100.00
100.00
100.00
20
MPT Statistics
As of 6/30/2020
MPT Statistics: 5-Year
Time Period: 7/1/2015 to 6/30/2020 Calculation Benchmark: BBgBarc Multiverse TR USD
Apollo
Total
Return
Fund
Loomis
Sayles
Multisector
Full
Discretion
OHA
Diversified
Credit
Strategies
Fund
PIMCO
Diversified
Income I
Franklin
Templeton
Global
Bond
Plus
BBgBarc
Multiverse
TR USD
Return
Excess Return
Std Dev
Beta
Tracking Error
Sharpe Ratio
Alpha
Information Ratio
Batting Average
Up Capture Ratio
Down Capture Ratio
4.17
0.54
4.93
0.43
5.21
0.61
1.98
0.10
53.33
51.15
1.54
5.45
1.82
5.37
0.76
4.25
0.80
2.39
0.43
56.67
82.39
30.57
3.75
0.12
8.09
0.68
7.61
0.32
1.15
0.02
55.00
55.18
17.76
5.53
1.90
5.85
0.76
4.82
0.75
2.48
0.39
60.00
83.56
30.93
0.17
-3.46
6.57
-0.04
8.10
-0.15
-0.68
-0.43
3.63
43.33
0.00
-18.86
4.55
-37.79
1.00
0.00
0.54
0.00
100.00
100.00
100.00
MPT Statistics: 7-Year
Time Period: 7/1/2013 to 6/30/2020 Calculation Benchmark: BBgBarc Multiverse TR USD
Return
Excess Return
Std Dev
Beta
Tracking Error
Sharpe Ratio
Alpha
Information Ratio
Batting Average
Up Capture Ratio
Down Capture Ratio
4.36
1.77
7.04
0.63
6.68
0.50
2.54
0.26
59.52
65.91
12.59
5.68
3.09
5.03
0.76
3.92
0.96
3.44
0.79
61.90
94.95
30.80
5.24
2.65
5.48
0.77
4.43
0.80
3.03
0.60
59.52
93.96
37.94
0.92
-1.67
5.99
0.07
7.24
0.01
0.12
-0.23
50.00
1.16
-17.23
2.59
0.00
4.39
1.00
0.00
0.40
0.00
100.00
100.00
100.00
21
Investment Option Narratives
22
As of 6/30/2020
Apollo Total Return Fund
Strategy Overview Recommendation Summary
TRF is a value-oriented, long-only global multi-sector credit strategy designed to leverage Apollo’s entire credit
platform. The strategy targets a LIBOR plus 600 to 800 basis point gross return while focusing on four main
sectors: US corporate credit, global credit, structured credit and real estate credit. The strategy is unconstrained
in nature and can invest in a mix of public and private credits ranging between investment grade and high yield.
While the strategy has the ability to invest in CCC rated securities, it will not invest in distressed assets.
Apollo’s industry specific credit analysts source the majority of their ideas from either the firm’s broad industry
contacts or a network of portfolio company relationships. Importantly, Apollo’s ownership interests in a number of
underlying businesses provide access to complex and less liquid securities: MidCap (middle market loans),
Amerihome (residential mortgages) and Merx (aviation finance). Apollo believes these types of securities are a
significant source of return and advantage for TRF. Once ideas are identified the firm’s credit analysts use a
variety of techniques to assess relative value with the goal of providing the sector PMs with an opinion. The PMs
then conduct additional research before making a formal recommendation to the Investment Committee lead by
Zelter.
Portfolio construction incorporates qualitative and quantitative factors with an emphasis placed on a relative
value assessment of sectors and credits. Beginning with the macro, CIO Zelter and the asset allocation
committee meet monthly to review the market which influences the overall risk posture of the strategy. To
augment the viewpoint, the sector PMs provide on their respective strategies. These qualitative viewpoints are
married to the firm’s forward-looking sector risk and return expectations which results in an optimal asset
allocation. Once determined, the sector PMs are responsible for the day-to-day portfolio activities for their
respective sleeves including sourcing and vetting ideas while Moroney and Zito monitor the portfolio’s asset
allocation. The resulting portfolio is broadly diversified with position size ranging between 0.2% for normal
exposures and 1% for high-conviction ideas. Risk at the portfolio level is mitigated primarily through
diversification across industry sectors, credit rating and geographies.
We recommend TRF for clients seeking an opportunistic, broad-based approach to public and private credit with
the goal of capturing illiquidity and complexity premia. The strategy is appropriate for clients who have core
public fixed income exposures and are seeking diversification or for clients seeking a complementary strategy to
their dedicated private credit exposures. TRF is a long-only strategy with low correlation to traditional fixed
income designed to dynamically allocate across Apollo’s integrated investment platform which includes private
equity, credit and real estate. The key differentiator is Apollo’s scale and capability that allows the various sub-
teams to access opportunities that require significant expertise. The situational and structural complexities of
these transactions are often hard to dissect, and as such, offer a source of potential return. Led by co-President
and CIO of Apollo Credit James Zelter, TRF dynamically shifts across the four underlying sectors: US corporate
credit, global credit, structured credit and real estate credit. Utilizing the firm’s macro and micro viewpoints, each
sector strategy PM is empowered to deploy their best ideas. Importantly, TRF is offered in a commingled vehicle
with a low minimum and offers competitive fees in the space.
Jim Zelter, co-President and CIO of Apollo Credit is primarily responsible for overseeing the approximately $200
billion credit business, which include a variety of strategies. Joe Moroney and John Zito serve as co-Heads of
Apollo’s Global Liquid Credit business, which includes TRF. These senior PMs are supported by 11 sector PMs
who are responsible for the individual strategy sleeves as well as more than 205 credit analysts, seven traders
and six risk managers. Moroney and Zito retain final investment decision-making authority over TRF.
Apollo has beneficial ownership interests in companies that underwrite and securitize securities that TRF has
the ability to purchase: MidCap (middle-market loans), Amerihome (residential mortgages) and Merx (aviation
finance). In all three cases, Apollo relies on independent market forces to align the interests of TRF
shareholders and the companies. Additionally, Athene, a publicly traded insurance company (NYSE:ATH) and
subsidiary of Apollo, participates in purchases of securities from the companies. We prefer full transparency with
regard to potential costs borne by shareholders of strategies such as TRF. While we are unable to assign a
specific charge related to the transaction costs of these securities, we do believe that there is sufficient
alignment between Apollo and the companies to help ensure that charges are reasonable and fair. Importantly,
employees of Apollo responsible for managing TRF are judged on their performance which drives execution and
pricing. Additionally, Apollo, Athene and TRF are audited by external parties who validate pricing and calculate
performance on a monthly basis. The auditors provide independent third-party valuation of all security
transactions that do not have a publicly traded secondary market-determined price. This review takes place on a
quarterly basis and provides a level of granularity that is consistent with most publicly traded fund equivalents.
Many members of the senior investment team including Black, Rowan and Zelter are nearing retirement age.
While no indication was given during our meeting that any members are expected to leave in the near-term, we
are comforted by the fact that lead PMs Joe Moroney and John Zito and many of the sleeve PMs are in their
mid-40s and have a long runway.
Team Overview Points to Consider
Apollo Global Management was founded in 1990 by Leon Black, Joshua Harris and Marc Rowan. Black, Harris
and Rowan previously served together at Drexel Burnham Lambert. The firm employs more than 1,100
professionals, including more than 380 who are dedicated to investments. Headquartered in New York, the firm
has 15 offices globally and manages more than $300 billion across private equity, credit and real estate
strategies. Apollo completed its initial public offering in March 2011 is publicly traded (NYSE:APO). Since the
IPO, the percentage of shares owned by the founders and other shareholders has remained relatively constant
at above 50%.
The strategy targets annual gross returns between LIBOR plus 600 to 800 basis points. We expect the strategy
to provide a consistent, smooth return in normal market environments. Because the strategy invests in a mix of
public and private credits, the strategy should be expected to provide greater downside protection when
compared to pure public credit strategies. Importantly, the strategy typically allocates a portion of the portfolio to
cash with the goal of providing market liquidity during dislocations. That said, the strategy should be expected to
underperform during strong risk-on markets when lower quality credits outperform.
Firm Overview Expectations
For strategy narratives presented, all data represents AndCo's view and may differ from the manager's interpretation.
23
As of 6/30/2020
Loomis Sayles Multisector Full Discretion
Strategy Overview Recommendation Summary
The Multisector Full Discretion (MFSD) strategy seeks to achieve high total return through individual security
selection using fundamental credit analysis from its fixed income research department, as well as input from
various sector and macro teams. MSFD employs an opportunistic style, focusing on out of favor sectors of the
fixed income markets to generate ideas. The strategy emphasizes a long-term view of market developments,
with the intention being to hold securities through a cycle, as they improve fundamentally. MSFD does not focus
on the benchmark as a starting point for portfolio construction. Instead, Loomis views the entire spectrum of fixed
income markets as a global opportunity set from which to choose the most attractive total return opportunities,
regardless of market sector.
The performance objective of Loomis Sayles' Multisector Full Discretion strategy is to maximize total return while
managing downside risk. In order to achieve this goal, the strategy utilizes a value-driven, opportunistic style
that will buy securities across a broad universe, including Emerging Markets, Non-US dollar, Convertibles,
Structured Finance, and High Yield. The investment process is comprised of top-down analysis and bottom-up
research as they seek to identify attractive sectors and securities. This strategy will typically look much different
from any global bond benchmark due to its benchmark agnostic style.
The Fund may invest up to 35% of its assets in below investment-grade fixed-income securities (commonly
known as “junk bonds”) and up to 20% of its assets in equity securities, such as common stocks and preferred
stocks (with up to 10% of its assets in common stocks). The Fund’s fixed-income securities investments may
include unrated securities (securities that are not rated by a rating agency) if Loomis Sayles determines that the
securities are of comparable quality to rated securities that the Fund may purchase. The Fund may invest in
fixed-income securities of any maturity.
The Loomis Sayles Multisector Full Discretion portfolio is designed to offer clients broad exposure to public fixed
income markets while maintaining a sizable overweight to corporate bonds (IG & HY in aggregate), convertible
bonds and preferreds. The strategy is managed by Dan Fuss and the Full Discretion team and the approach is
consistent with the team’s style and the culture at Loomis. As a result of the strategy’s bias, the short-and near-
term performance of the strategy will be heavily influenced by the direction of credit spreads. It comes as no
surprise then that given the strategy’s bias, it has exhibited strong returns during periods marked by stable to
narrowing credit spreads. Given these things, we believe the strategy should be viewed as a carve out within a
dedicated asset allocation framework. The strategy has historically exhibited higher correlation to equity
benchmarks, and as a result, we believe clients should view this strategy as an opportunistic carve out within the
plan structure as opposed to a stand-alone fixed income allocation. Clients considering the strategy should be
comfortable with the degree of credit exposure and higher volatility profile higher than its peers.
The Full Discretion (FD) team is responsible for management of the Multisector Full Discretion strategy. The
members are Daniel J. Fuss, Matthew J. Eagan and Elaine Stokes. The aforementioned portfolio managers have
been with Loomis for an average of nearly 40 years. Fuss and Stokes have worked on the product since its
inception in 1989. In total, they manage over $60 billion across several Loomis products. In more recent years,
the PM team was joined by Brian Kennedy. Kennedy joined the Full Discretion team in 2009 and became a co-
portfolio manager on the team’s multisector offerings in 2016.
Investors may not realize that the strategy can hold up to 20% equities and typically maintains a healthy
allocation to dividend-paying equities. This can result in higher equity sensitivity than the investor may prefer,
especially one investing with the mindset that this allocation will fill a dedicated fixed income slot in the portfolio.
Dan Fuss is over 80 years old. While the strategy is in able hands with Stokes, Eagan and Kennedy, when Fuss
retires, inevitably a certain percentage of current investors will terminate their relationship with this strategy. This
could create selling pressure for the bonds in the portfolio, which would negatively impact remaining
shareholders. While Fuss’ retirement does not appear imminent, this is something clients and prospects should
be mindful of.
Team Overview Points to Consider
Loomis Sayles & Company, was founded in 1926 and is a wholly-owned subsidiary of Natixis Global Asset
Management, L.P., the US-based subsidiary of Natixis which is based in Paris, France. Headquartered in
Boston, Massachusetts, Loomis Sayles maintains offices in San Francisco, Detroit, London and Singapore and
employs more than 675 professionals. The firm manages in excess of $260 billion in AUM across a variety of
equity, fixed income and multi-asset strategies.
By and large, as credit goes, so goes this strategy. The strategy is sensitive to market corrections such as the
Global Financial Crisis in 2008 and the Energy collapse led by oil in 2015. Unsurprisingly, the team saw
substantial underperformance in both years. Although, we take heart in the experience of the team to navigate
spread movements as they’ve seen this story before. Further comforting is the fact that the team will grow
conservative when markets dictate that they do so. They aren’t credit perma-bulls. In 2014, the strategy briefly
built a 16% stake in short-term Treasuries before quickly putting that money back into high yield when spreads
widened. That trade hasn’t played out in the strategy’s favor as the subsequent Energy collapse hit high yield
issuers the hardest, but the team has shown the ability to deftly navigate these waters before. This was
evidenced by the strong winning position in Ford debt in 2009 when many pundits were predicting bankruptcy
for the company that did not end up playing out as expected.
Firm Overview Expectations
For strategy narratives presented, all data represents AndCo's view and may differ from the manager's interpretation.
24
As of 6/30/2020
OHA Diversified Credit Strategies Fund
OHA’s process is built upon the belief that successful investing through credit cycles comes only through in-
depth understanding of three key tenants: 1) industries, companies and vehicles, 2) capital structures, and 3)
valuations. Given that, OHA seeks to build a “best ideas” portfolio across a broad opportunity set, agnostic of
geographic or sector constraints. As evidence, the strategy can be fully invested in either bank loans or high
yield bonds while limiting exposures to structured credit and distressed assets to 25% and 10%, respectively.
Despite the liberal constraints, the team remains singularly focused on identifying the optimal entry point into the
capital structure which has historically resulted in a diversified portfolio. OHA’s approach incorporates both top-
down and bottom-up inputs with an emphasis placed on the fundamentals. The strategy’s target return is
between 6% - 9% net of fees over a full market cycle. To achieve the target, OHA employs an opportunistic
approach designed to rotate between sectors based on a relative value assessment with the goal of maximizing
risk-adjusted returns while harvesting both the credit and illiquidity premia.
The portfolio construction process is multifaceted and begins with incorporating the firm’s top-down viewpoints in
order to identify attractive sectors and issuers. Risk capital is not allocated on a sector basis. Rather, the team
works collaboratively to identify opportunities. Once an opportunity is identified, the assigned credit analyst
works with the sector portfolio manager to determine if the idea warrants further investigation. Those credits
deemed worthy then undergo an intensive credit analysis which focuses on the capital structure of the business
and a relative value analysis in order to develop a thesis. The process concludes with a final recommendation
which is vetted and debated by the broader team. If deemed appropriate, the sector portfolio manager will then
set a price target for execution.
Monitoring and risk management is integrated throughout the investment process and is primarily the
responsibility of the sponsoring analyst. The objective of the process is to identify changes to the credit profile of
the issuer, general business conditions and competitive dynamics that may affect the security’s valuation before
the rest of the market. Rather than setting dedicated price targets, OHA thinks about re-underwriting the credit
daily which forces the portfolio managers to consider securities with better risk/reward characteristics.
Consistency of execution is what distinguishes OHA and the Diversified Credit Strategies Fund (the Fund). OHA
has been managing leveraged credit strategies for more than 25 years. During that time, the firm has built a
superior reputation for its research-focused, value-oriented approach towards credit selection. The process is
designed to achieve superior risk-adjusted returns primarily by avoiding losses due to defaults while tactically
rotating through the Fund’s opportunity set based on an assessment of the credit cycle.
Another key differentiator is OHA’s investment team. Led by PM Adam Kertzner, the team covers the full
spectrum of public credit including high yield bonds, U.S. and European loans, CLOs and distressed credits. The
11 member team responsible for the management of the Fund and the sector strategies averages in excess of
25 years of experience with most having served at OHA in excess of a decade. While the strategy was incepted
in 2012, both the trailing period and calendar returns are strong and consistent relative to the preferred
benchmark. Importantly, the Fund is offered in separate account and pooled vehicles with competitive fees. As
such, we believe clients who desire a diverse and disciplined approach to credit selection with the potential for
downside protection would benefit from OHA’s time-tested investment process.
The team is comprised of 17 individuals with an average of more than 20 years of industry expertise and a
decade of experience at OHA. The daily management of the strategy is handled by PM and Partner Adam
Kertzner. Kertzner is supported by three co-PMs and the fully integrated investment team. The investment
process is collaborative and iterative among the team and there are no formal voting procedures or investment
committee. Kertzner retains the ultimate decision-making authority.
The team has experienced some turnover in recent periods. Beginning in 2016, Jason Epstein, who served as a
high yield analyst, left to pursue other opportunities. While we viewed Epstein as a competent investor and
contributor to the team, his departure was not material to the overall strategy. In 2017, the team added Drew
Newton, Head of U.S. Distressed Credit, and Chad Valerio, Portfolio Manager, to further expand their
capabilities in distressed assets. While we have not had the opportunity to directly interact with either Newton or
Valerio, their previous experience at Merrill Lynch and Deutsche Asset Management in distressed assets give us
comfort. Importantly, the senior members of the team have been together for a significant period of time.
Accessing the strategy may be difficult for some clients. While the fees are attractive relative to peers in the
space, a separate account requires $200 million while the commingled vehicle requires $10 million, making both
challenging for most of our clientele. Furthermore, no mutual fund is currently offered or planned.
There is an element of key man risk with Kertzner serving as the lead portfolio manager. While the supporting
group of PMs and credit analysts are experienced, none have been identified as having the required asset
allocation experience. Should Kertzner depart, we would review our recommendation.
Team Overview Points to Consider
Oak Hill Advisors was founded in 1991 by Glenn R. August, the CEO of OHA. The predecessor business of OHA
was originally part of the private equity business of Robert Bass. The decision to become an independent firm
was driven by the principals’ intent to concentrate the firm’s ownership and credit focus. Today, OHA is majority-
owned by 13 employee partners (67%) with the remaining equity owned by entities controlled by Bass and
General Atlantic, a global growth equity firm. The firm is a recognized leader in alternative credit strategies with
approximately $35 billion in AUM across a variety of mandates including high yield bonds, leveraged loans,
private lending, distressed investments and structured credit. They are headquartered in New York, with offices
in Fort Worth, London, Luxembourg, Hong Kong and Sydney.
The strategy invests across a broad spectrum of the credit markets including high yield and distressed debt. As
such, investors should expect the strategy to exceed the benchmark during periods of stable to improving credit
markets marked by narrowing credit spreads. Conversely, the strategy may encounter periods of illiquidity
evidenced by market dislocations and economic regime changes. While the team and strategy are focused on
providing downside protection, investors should expect relative underperformance during these periods given
the liquid nature of the benchmark.
Firm Overview Expectations
For strategy narratives presented, all data represents AndCo's view and may differ from the manager's interpretation.
25
As of 6/30/2020
PIMCO Diversified Income I
Strategy Overview Recommendation Summary
The DI strategy is designed to provide investors with a comprehensive global credit solution. It is a multi-sector
strategy that invests across a broad spectrum of global credit market sectors, including investment grade and
high yield, corporate debt as well as emerging market debt. The allocation among each of these markets will
vary based on PIMCO’s assessment of global trends and relative valuations. This active and dynamic approach
allows for increased responsiveness in asset allocation to changing economic and market conditions while
remaining anchored by PIMCO’s investment process and longer-term orientation.
PIMCO’s investment process starts with an annual Secular Forum at which PIMCO investment professionals
from around the world gather with industry experts for a three-day discussion about the future of the global
economy and financial markets. The goal of this forum is to look beyond the current business cycle and
determine how secular forces will play out over the next three-to-five years. The Diversified Income team is
responsible for implementing top down strategies developed at the Forum, as well as for developing bottom-up
strategy by maintaining constant contact with the PIMCO specialist teams responsible for the sectors in the
Diversified Income strategy’s opportunity set. New investment ideas are sourced by individual team members
and discussed in regularly scheduled strategy meetings. In evaluating new investment ideas, the team applies a
number of qualitative and quantitative screens. The team also makes a full assessment of the fundamental credit
factors underpinning an investment idea, incorporating the relevant credit analysis team into the discussion as
needed.
Clients considering a diversified approach to fixed income should give strong consideration to PIMCO’s
Diversified Income strategy. PIMCO’s primary advantage is the firm’s global credit resources which compare
favorably with best in class peers. The firm employs global team of 230 portfolio managers and 114 research
analysts located around the globe. These analysts internally rate every credit held across PIMCO portfolios.
While this is a practice utilized by many peers, the depth and experience of the team give PIMCO a competitive
advantage in this area. Furthermore, PIMCO benefits from scale which is a significant advantage when sourcing
allocations to new issuance. In oversubscribed situations, PIMCO typically gets a sizeable allocation where
smaller managers would be forced to source in the secondary market. Finally, PIMCO’s capabilities within
emerging markets are also a differentiator. The team operates out of multiple locations including Singapore,
Munich, and Newport Beach. Analysts travel extensively to investigate opportunities around the globe. This
“boots on the ground” orientation provides unique insights that less global firms are unable to secure.
We believe that PIMCO DI strategy is suitable for clients seeking a higher yielding alternative to core fixed
income with diversified exposures to global interest rates and credit. The approach looks to benefit from
PIMCO’s macroeconomic views on credit trends, global interest rates, duration, currencies, and curve
positioning. This diversified approach aims to provide the potential for consistent outperformance over the long-
term through relative value trades, especially compared to approaches that focus on a single asset class.
PIMCO’s Diversified Income strategy is headed by Group CIO Dan Ivascyn who works alongside PMs Alfred
Murata, Sonali Pier and Eve Tournier. The four senior PMs can draw upon PIMCO’s global team consisting of
230 portfolio managers and 114 research analysts. Additionally, PIMCO’s sector specialists are primarily
responsible for determining the relative attractiveness of opportunities. Idea generation is a collaborative effort
and with the senior PMs meeting formally each week to discuss global credit markets, portfolio positioning and
potential investment opportunities. Consensus on the team is typically necessary in order to move forward with
an investment decision. However, in the event consensus is not reached, Ivascyn retains final investment
authority.
As with most PIMCO strategies, assets under management and capacity are always considerations. With over
$8B in AUM, the strategy will employ liberal use of derivatives to manage portfolio exposures as it is often
difficult, and sometimes impossible, for PIMCO to manage exposures in this fashion via the cash market.
Therefore, clients need to be comfortable with the use of derivatives. In addition, accurately assessing what the
strategy is invested in is problematic because the use of derivatives will often showcase unique and confusing
portfolio exposures, such as negative cash balances and leverage (per 40 Act regulations, the strategy can be
up to 30% levered). These are considerations clients need to assess to determine suitability.
Team Overview Points to Consider
Pacific Investment Management Company (PIMCO) was founded in Newport Beach, CA in 1971. PIMCO is one
of the world’s largest fixed income managers, with a presence in every major bond market. PIMCO started as a
subsidiary of Pacific Life Insurance Company to manage separate accounts for institutional clients. Today,
PIMCO has offices in Newport Beach and 16 other global locations. In 2000, PIMCO was acquired by Allianz.
PIMCO operates as a separate and autonomous subsidiary of Allianz. The firm manages over $1.8T in AUM.
PIMCO's investment philosophy seeks to add value in all market environments and circumstances. The
philosophy of measured risk-taking across multiple concurrent strategies may deliver stable excess returns
across different market conditions. At any one time, one or several of their strategies may be working to provide
excess return. The disciplined style works to limit the likelihood that any single strategy that falls out of favor
would negate the positive returns from other strategies.
During periods of extreme volatility, PIMCO's investment philosophy may be deemed out of favor. During these
periods, certain managers may accurately predict large movements in prices and subject the portfolio to more
risk than PIMCO would. This would result in substantially higher returns than PIMCO could be expected to
achieve. However, in volatile periods, large amounts of risk can also lead to substantial underperformance,
which PIMCO's approach seeks to mitigate.
Firm Overview Expectations
For strategy narratives presented, all data represents AndCo's view and may differ from the manager's interpretation.
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Glossary of Terms
Alpha - A measure of the difference between a portfolio’s actual returns and its expected performance,
given its level of risk as measured by beta.
Batting Average –A measure of a manager's ability to consistently beat the market. It is calculated by
dividing the number of months in which the manager beat or matched an index by the total number of
months in the period.
Best Quarter-This is the highest quarterly (3 month) return of the investment since its inception.
Beta - A measure of the sensitivity of a portfolio to the movements in the market. It is a measure of the
portfolio's systematic risk.
Down Period Percent -Number of months below 0 divided by the total number of months.
Downmarket Capture Ratio - The ratio of average portfolio performance over the designated
benchmark during periods of negative returns. A lower value indicates better product performance.
Downside Std Dev - This measures only deviations below a specified benchmark.
Excess Return- This is a measure of an investment's return in excess of a benchmark.
Information Ratio - This calculates the value-added contribution of the manager and is derived by
dividing the excess rate of return of the portfolio by the tracking error. The higher the Information Ratio,
the more the manager has added value to the portfolio.
Longest Down-Streak Return - Return for the longest series of negative monthly returns.
Longest Down-Streak # of Periods - Longest series of negative monthly returns.
Longest Up-Streak Return - Return for the longest series of positive monthly returns.
Longest Up-Streak - Longest series of positive monthly returns.
Kurtosis - Kurtosis indicates the peakedness of a distribution. For normal distribution, Kurtosis is 3.
Max Drawdown - The peak to trough decline during a specific record period of an investment or fund. It
is usually quoted as the percentage between the peak to the trough.
Max Drawndown # of Periods - This is the number of months that encompasses the max drawdown
for an investment.
R-Squared - The percentage of a portfolio's performance that can be explained by the behavior of the
appropriate benchmark. A high R-Squared means the portfolio's performance has historically moved in
the same direction as the appropriate benchmark.
Return - Compounded rate of return for the period.
Sharpe Ratio - Represents the excess rate of return over the risk free return divided by the standard
deviation of the excess return. The result is an absolute rate of return per unit of risk. A higher value
demonstrates better historical risk-adjusted performance.
Skewness - Skewness reflects the degree of asymmetry of a distribution. If the distribution has a longer
left tail, the function has negative skewness. Otherwise, it has positive skewness. A normal distribution
is symmetric with skewness 0.
Sortino Ratio - The Sortino Ratio is similar to Sharpe Ratio except it uses downside risk (Downside
Deviation) in the denominator. It was developed in early 1980's by Frank Sortino. Since upside
variability is not necessarily a bad thing, Sortino ratio is sometimes more preferable than Sharpe ratio.
Standard Deviation - A statistical measure of the range of a portfolio's performance. It represents the
variability of returns around the average return over a specified time period.
Tracking Error - This is a measure of the standard deviation of a portfolio's excess returns versus its
designated market benchmark.
Treynor Ratio -Similar to Sharpe Ratio, Treynor Ratio is a measurement of efficiency utilizing the
relationship between annualized risk-adjusted return and risk. Unlike Sharpe Ratio, Treynor Ratio
utilizes "market" risk (beta) instead of total risk (standard deviation). Good performance efficiency is
measured by a high ratio.
Up period Percent -Number of months above 0 divided by the total number of months.
Upmarket Capture Ratio - The ratio of average portfolio performance over the designated benchmark
during periods of positive returns. A higher value indicates better product performance.
Worst Quarter - This is the lowest quarterly (3 month) return of the investment since its inception.
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Important Disclosures
IMPORTANT DISCLOSURE INFORMATION
This material is confidential and not intended for distribution to the public. AndCo Consulting (“AndCo”) compiled this report for the sole use of the client for which it was prepared. AndCo uses the material contained in this evaluation to make
observations and recommendations to the client, however the strategies listed may not be suitable for all investors and there is no guarantee that the strategies listed will be successful. Any information contained in this report is for informational
purposes only and should not be construed to be an offer to buy or sell any securities for investment consulting, or investment management analysis services. Additionally, the analysis provided, while generally comprehensive, is not intended to
provide complete information on each of the management organizations or their underlying strategies. Please refer to their respective prospectus for complete terms, including risks and expenses.
Performance data is provided for historical and informational purposes only. Where applicable, results shown represent past performance and do not represent expected future performance or experience. Past performance does not guarantee
future results. Returns are typically stated net of fees, which may include: investment advisory fees, taxes and other expenses. There may be instances where certain returns are shown gross of fees (i.e., before the aforementioned fees are
deducted) and would be noted as such. Generally, there are two instances where returns may be shown as gross figures. In the case of separate accounts, typically returns are demonstrated as gross of fees due to the fact that the fee structure
would generally vary widely depending on the client’s size and circumstances. Additionally, there are instances where a strategy vehicle is relatively new and does not have a sufficiently long track record to represent a viable comparison relative
to other strategies. Accordingly, the returns for the separate account version of such a strategy could be used as demonstrative of the performance for a similar vehicle; separate account returns are generally shown as gross of fees. It is
important to note that any such separate accounts being used as a “proxy” are strictly for illustrative purposes. An investor should not expect the same results from the actual strategy(ies) under consideration. When client-specific performance is
shown, AndCo uses time-weighted calculations, which are founded on standards recommended by the CFA Institute. In these cases, the performance-related data shown are based on information that is received from custodians. As a result, this
provides AndCo with a reasonable basis that the investment information presented is free from material misstatement.
RISK FACTORS
The risks outlined herein do not purport to cover all risks or underlying factors associated with investing in fixed income products. Please refer to the respective offering documents for complete information.
Prospective investors should be aware that investing in fixed income products may not be suitable for all investors and involves a degree of risk. The primary risk factors which affect fixed income strategies are interest rate risk and credit risk. The
value of most bonds and bond strategies are impacted by changes in interest rates. Interest rate risk is the risk that a bond’s value will decline due to an increase in market interest rates. The price of bonds with longer maturities is typically
affected more by rising interest rates than the price of bonds with shorter maturities. Credit risk is the risk that the issuer of a bond will fail to repay principal and interest on the security when due, as well as the potential downgrading on individual
bonds. Potential investors should also consider other associated risks with these products, such as: inflation risk, income risk and liquidity risk.
SOURCING
Information is based on sources and data believed to be reliable, but AndCo cannot guarantee the accuracy, adequacy or completeness. The information provided is valid as of the date of distribution or the as-of date indicated and not as of any
future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after such date.
This document may contain data provided by Morningstar. All rights reserved. Use of this content requires expert knowledge. It is to be used by specialist institutions only. The information contained herein: (1) is proprietary to Morningstar and/or
its content providers; (2) may not be copied, adapted or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this
information, except where such damages or losses cannot be limited or excluded by law in your jurisdiction. Past financial performance is not guarantee of future results.
This document may contain data provided by Bloomberg. Bloomberg Barclays Index Data provided by way of Barclays Live.
This document may contain data provided by Standard and Poor’s. Nothing contained within any document, advertisement or presentation from S&P Indices constitutes an offer of services in jurisdictions where S&P Indices does not have the
necessary licenses. All information provided by S&P Indices is impersonal and is not tailored to the needs of any person, entity or group of persons. Any returns or performance provided within any document is provided for illustrative purposes
only and does not demonstrate actual performance.
This document may contain data provided by MSCI, Inc. Copyright MSCI, 2012. Unpublished. All Rights Reserved. This information may only be used for your internal use, may not be reproduced or re-disseminated in any form and may not be
used to create any financial instruments or products or any indices. This information is provided on an “as is” basis and the user of this information assumes the entire risk of any use it may make or permit to be made of this information. Neither
MSCI, any of its affiliates or any other person involved in or related to compiling, computing or creating this information makes any express or implied warranties or representations with respect to such information or the results to be obtained by
the use thereof, and MSCI, its affiliates and each such other person hereby expressly disclaim all warranties (including, without limitation, all warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and
fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any other person involved in or related to compiling, computing or creating this information have
any liability for any direct, indirect, special, incidental, punitive, consequential or any other damages (including, without limitation, lost profits) even if notified of, or if it might otherwise have anticipated, the possibility of such damages.
This document may contain data provided by Russell Investment Group. Russell Investment Group is the source owner of the data contained or reflected in this material and all trademarks and copyrights related thereto. The material may contain
confidential information and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a user presentation of the data. Russell Investment Group is not responsible for the formatting or configuration of this
material or for any inaccuracy in presentation thereof.
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