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Is PIMIX a Strong Bond Fund Right Now?

Zacks Equity Research
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Having trouble finding a Diversified Bonds fund? PIMCO Income Institutional (PIMIX) is a possible starting point. PIMIX bears a Zacks Mutual Fund Rank of 3 (Hold), which is based on nine forecasting factors like size, cost, and past performance.

Objective

The world of Diversified Bonds funds is an area filled with options, such as PIMIX. Investors looking for exposure to a variety of fixed income types that stretch across issuers, maturities, and credit levels will find a good fit with Diversified Bonds funds. Typically, these funds have a solid amount of exposure to government debt, as well as modest holdings in the corporate bond market.

History of Fund/Manager

PIMIX is a part of the PIMCO Funds family of funds, a company based out of Newport Beach, CA. PIMCO Income Institutional made its debut in April of 2007, and since then, PIMIX has accumulated about $56.88 billion in assets, per the most up-to-date date available. Daniel J. Ivascyn is the fund's current manager and has held that role since April of 2007.

Performance

Of course, investors look for strong performance in funds. This fund has delivered a 5-year annualized total return of 5.14%, and it sits in the top third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 6.05%, which places it in the top third during this time-frame.

When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. Compared to the category average of -7.51%, the standard deviation of PIMIX over the past three years is 2.07%. The fund's standard deviation over the past 5 years is 2.42% compared to the category average of -9.16%. This makes the fund more volatile than its peers over the past half-decade.

Bond Duration

Modified duration is a measure of a specific bond's interest rate sensitivity, and is an excellent way to judge how fixed income securities will respond to a shifting rate environment.

For those that believe interest rates will rise, this is an important factor to consider. PIMIX has a modified duration of 3.11, which suggests that the fund will decline 3.11% for every hundred-basis-point increase in interest rates.

Income

It is important to consider the fund's average coupon because income is often a big reason for purchasing a fixed income security. Average coupon is a look at the average payout by the fund in a given year. For example, this fund's average coupon of 3.59% means that a $10,000 investment should result in a yearly payout of $359.

A higher coupon is good for those seeking a strong level of current income, but it could also pose a reinvestment risk if rates are lower in the future when compared to the initial purchase date of the bond.

Income is only one part of the bond picture, investors also need to consider risk relative to broad benchmarks. PIMIX carries a beta of 0.33, meaning that the fund is less volatile than a broad market index of fixed income securities. With this in mind, it has a positive alpha of 3.86, which measures performance on a risk-adjusted basis.

Ratings

Investors should also consider a bond's rating, which is a grade ( 'AAA' to 'D' ) given to a bond that indicates its credit quality. With this letter scale in mind, PIMIX has 25.95% in high quality bonds rated at least 'AA' or higher, while 30.43% are of medium quality, with ratings of 'A' to 'BBB'. The fund's junk bond component-bonds rated 'BB' or below-is at 33.21%, giving PIMIX an average quality of BBB. This means that it focuses on medium quality securities.

Expenses

Costs are increasingly important for mutual fund investing, and particularly as competition heats up in this market. And all things being equal, a lower cost product will outperform its otherwise identical counterpart, so taking a closer look at these metrics is key for investors. In terms of fees, PIMIX is a no load fund. It has an expense ratio of 0.50% compared to the category average of 1.79%. PIMIX is actually cheaper than its peers when you consider factors like cost.

While the minimum initial investment for the product is $1 million, investors should also note that there is no minimum for each subsequent investment.

Bottom Line

Overall, PIMCO Income Institutional ( PIMIX ) has a neutral Zacks Mutual Fund rank, strong performance, worse downside risk, and lower fees compared to its peers.

For additional information on the Diversified Bonds area of the mutual fund world, make sure to check out www.zacks.com/funds/mutual-funds. There, you can see more about the ranking process, and dive even deeper into PIMIX too for additional information. If you are more of a stock investor, make sure to also check out our Zacks Rank, and our full suite of tools we have available for novice and professional investors alike.


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