Analyst Report
Morningstar's Take

by Jeana Marie Doubell
Pimco Euro Bond’s strengths are rooted in the depth and experience of its team and its wide-ranging approach to alpha generation. Its institutional share classes earn a Morningstar Medalist Rating of Gold, while more expensive share classes are rated Silver and Bronze.

Lead manager Lorenzo Pagani boasts 19 years’ investment experience and joined the management roster here in 2014. He was promoted to lead manager in 2017, when his predecessor, Andrew Balls, took on the role of Pimco’s head of global fixed income (Balls is still a backup comanager for the strategy). Pagani’s workload is significant; in addition to his duties here, he comanages the firm’s global bond and global inflation-linked bond strategies. However, we are comforted by the resources backing him at this strategy; in addition to Balls, Pagani is supported by comanager Konstatein Veit, who formally replaced previous comanager Andrew Bosomworth in April 2021 upon the latter’s retirement. Veit has worked at Pimco in the fixed-income team for 12 years, and alongside Pagani and Balls on the European rates desk (which he was named head of in 2021) for over seven years. Overall, Pagani and his team rely on a group of 50 portfolio managers specialising in European rates, currencies, and corporate and securitized credit, along with over 80 credit analysts globally.

Aiming to outperform the FTSE Euro Broad Investment Grade Index, Pagani actively manages the fund’s duration, interest-rate curve positioning, and country exposures, as well as its allocation to government, corporate, and securitized debt. The team also dabbles outside the investment-grade euro-denominated bond universe in emerging-markets debt, asset-backed securities, and currencies (though the latter are limited to 10% of the fund’s overall risk budget) and make extensive use of derivatives.

The fund boasts an attractive long-term record. Its Institutional EUR Acc share class’ 0.8% annualised 10-year return through April 2023 beats its median peer in the EUR diversified bond Morningstar Category (which returned 0.1% annualised over the same period) and its benchmark’s return (0.6% annualised). However, recent periods have seen the strategy stumble uncharacteristically, as overweight stakes in rates-sensitive inflation-linked bonds and Danish covered bonds stung in 2021 and a bias toward corporate bonds and the debt of Spain detracted in the first half of 2022. That has led to lackluster five-year trailing returns, with the fund marginally below its benchmark’s 1.9% loss through April 2023. Despite the strategy’s recent struggles, we remain confident in its experienced management, deep resources, and proven investment approach.

Morningstar Medalist Rating™This remains a strong offering in the euro bond space.
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Morningstar Pillars
ParentAbove Average
Morningstar Medalist RatingMorningstar assigns the Medalist Rating to funds that are qualitatively and quantitatively assessed through manager research and algorithmic processes. The assessment turns on three key “pillars” – People, Process, and Parent – that yield an estimate of how well a fund will perform before fees but after adjusting for risk.
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