Pimco drama proves no stock is an island
How an Allianz decline could ripple across the markets
Mar 24, 2014 @ 11:29 am (Updated 12:14 pm) EST
Think the unfolding drama at Pimco can't affect your clients' portfolios? Think again.
In the world of portfolio crash-testing analysis, no company is an island. In other words, even if you're not directly exposed to funds managed by Pacific Investment Management Co., you could feel the pinch if the troubles at Pimco start to impact its parent company, Allianz SE.
Pimco, which manages nearly $2 trillion, represents 30% of Allianz revenues. And, according to portfolio crash-testing analysis, an 11% drop in Allianz's stock could pull down the S&P 500 Index by 5.8%.
Advertisement
If Allianz shares fell by 22%, the S&P could by drop by more than 13%.
The Barclays Aggregate Bond Index, meanwhile, would be expected to rise by 0.3% on an 11% Allianz drop and go up 1.9% on a 22% Allianz drop.
In the world of quantitative portfolio crash testing, each security has a set of betas to unique factors such as market variable, style and growth variables, and liquidity.
Daniel Satchkov, president of RiXtrema Inc., explains that Allianz can represent a custom variable in the equation and any shocks to that variable can be calculated to forecast broader market effects.
Last week when Morningstar lowered its stewardship grade for Pimco in light the highly published management turmoil, Mr. Satchkov was able to easily calculate some broader market scenarios.
“We're looking at a situation at Pimco where if it's not too drastic there could be no major impact to the markets, but what if Morningstar really saw something inside the company that has the potential to degenerate into a full blown explosion?” he said. “If that's the case, we can easily conclude that Allianz stock price would suffer, and we can also calculate what will happen to different portfolios if that happens.”
Thus, depending on your outlook for what appears to increased internal strife at Pimco, there might be some increased downside risk in the making.
Jeff Benjamin covers investment strategies in his award-winning column, Investment Insights, and also dives deep into the minds of leading portfolio managers in his regular column, Portfolio Manager Perspectives.
Continue Reading
Advisers ratchet up scrutiny of Pimco
Advisers are ratcheting up their scrutiny of Pimco in the wake of a critical report from Morningstar. While few are pulling assets from the bond fund giant, the possibility is rising. (One big fund shop, however, has replaced Pimco as manager of a large fund.)
Pimco replaced by TCW as manager of $1.3B bond fund
The fund, previously known as the Pimco Mortgage-Backed Securities Fund, will become the TCW Core Plus Bond Fund, according to a statement today from Los Angeles-based TCW.
Pimco funds may face Morningstar analyst cuts
After visiting Pimco, analysts at Morningstar may downgrade their ratings for the money manager's funds. In a new report, they cited, among other things, a 'higher degree of uncertainty' around personnel in the wake of the departure of co-CIO Mohamed El-Erian.
Credit: RSS for Investments
