PIMCO Negative AA - How to interpret?

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PIMCO Negative AA - How to interpret?

Post by laughlinlvr » Wed Jun 25, 2014 9:36 am

From the Portfolio tab - Sector Diversification table for PTTRX (PIMCO Total Return Fund Institutional) is the following allocation. Money mkt and cash are given as a negative number. The whole adds up to 100% if the negative number is included. But how to interpret having less than zero cash or money market allocation?

Sector Diversification (%) as of 05/31/14
US Government-Related* 50.00
Mortgage 22.00
US Credit** 11.00
Non-U.S. Developed 13.00
Emerging Markets 8.00
Other*** 5.00
Money Market and Net Cash Equivalents**** -9.00

*May include nominal and inflation-protected Treasuries, Treasury futures and options, agencies, FDIC-guaranteed and government-guaranteed corporate securities, and interest rate swaps.
**May include both high yield as well as investment grade securities.
***May include municipals, convertibles, preferreds, and yankee bonds.
****Money Market and Net Cash Equivalents is defined as liquid investment grade securities with duration less than one year.
Last edited by laughlinlvr on Wed Jun 25, 2014 10:51 am, edited 2 times in total.
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Re: PIMCO Negative AA - How to interpret

Post by bobbun » Wed Jun 25, 2014 10:35 am

I think you would need to delve into a recent annual or semi-annual report to confirm with certainty. That said, my first thought on looking at the portfolio composition is that they're probably employing treasury bond futures in order to leverage the portfolio. The amount of leverage being employed (based on your numbers) doesn't look like it poses a big danger, but I think it would be outside the bounds of why I have bonds in my portfolio (stability, not maximization of returns).

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Re: PIMCO Negative AA - How to interpret?

Post by NOVACPA » Wed Jun 25, 2014 11:00 am

Agree with bobbun, check the financials if you really want to know.

But they are short the short duration liquid investment grade securities and long the longer duration securities. They are profiting off of the spread between the two.

Think of it this way, you borrow (take a short position) on your 0% credit card for 12 months (short duration), and use the funds to purchase (take a long position) on 2% 10 year Treasuries (long duration). The net effect is that you will make 2% in 12 months, all things being equal.

Do not do that though... Leave that to the institutional professionals who can do this on a grander scale.

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Re: PIMCO Negative AA - How to interpret?

Post by Tanelorn » Wed Jun 25, 2014 12:35 pm

Margin/borrowing shows up as negative cash.

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