NEWPORT BEACH, Calif., July 10, 2002 (PRIMEZONE) -- Risk-averse investors need not settle for the historically low interest rates currently offered by money market funds and certificates of deposit, according to a new study by PIMCO, one of the world's leading fixed-income asset management companies.
"The Cash Conundrum -- How to make cash pay, without betting the house," a study now posted on the PIMCO web site (www.pimco.com), demonstrates how investors with cash portfolios managed by PIMCO are continuing to earn interest rates of up to 100 basis points over current money market yields.
"When it comes to investing, Americans seem to prefer either water or Wild Turkey," said Paul McCulley, the PIMCO managing director in charge of short-term securities. "Investors seem to focus on the most conservative investment options available, such as CDs or money markets, or the riskiest, such as Nasdaq companies with little or no earnings.
"In fact," McCulley said, "there are a range of conservative options that over time perform much better than money markets, with little additional risk."
Financial planners often advise clients to keep the equivalent of six months' salary in cash, for use in the event of an emergency, noted PIMCO Vice President Paul Reisz, who authored the new study. In fact, people often do not need immediate access to that entire amount, and as a result, people lose out on the potential for much better returns, without much risk.
While money that truly needs to be accessed immediately should be "parked" in money market funds, short-term certificates of deposit and bank savings accounts, Reisz said, there are a range of options for investors with only a slightly longer time horizon.
Investments such as PIMCO's Short-Term Bond Fund, which on average yields 100 basis points better than such strict cash instruments, are appropriate for the portion of a portfolio that need not be accessed for a period of three months to one year, he said. The fund typically invests in low-duration corporate and mortgage bonds rated AA, as well as money market instruments, limited emerging markets, foreign bonds and high yield securities.
As for risk, PIMCO's Short-Term Fund has experienced only two months with a negative return -- and not a single negative quarter -- since its inception in October 1987. Over the five-year period ended June 30, 2002, the fund, with almost $3 billion in assets, has produced an annual average return of 5.59 percent.
The portion of a cash portfolio that need not be tapped for one to three years can do even better in a fund such as PIMCO's Low Duration, which typically provides a yield of 200 to 250 basis points greater than money markets. Over the past decade, investors in that fund have never experienced a negative nine- or 12-month period. Over the five-year period ended June 30, 2002, the fund, with about $7 billion in assets, has produced an average annual return of 6.72 percent.
Such strategies "are not designed to replace money market funds entirely," Reisz said. "Rather, they should be used to supplement your portfolio's cash allocation to facilitate higher returns over time." Indeed, the enhanced performance available by allocating a cash portfolio among different funds is behind the recent boom in managed accounts -- in which professional money managers constantly re-examine such investments to make sure they are earning maximum returns with minimal risk.
With more than $255 billion in fixed-income assets under management worldwide, PIMCO is one of the world's leading fixed-income fund-management companies. Founded in 1971 and based in Newport Beach, California, the company is majority owned by Munich-based Allianz Group, a leading global insurance company with nearly $1 trillion in assets and represented in 70 countries around the globe.
Except for the historical information and discussions contained herein, statements contained in this news release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the performance of financial markets, the investment performance of PIMCO's sponsored investment products and separately managed accounts, general economic conditions, future acquisitions, competitive conditions and government regulations, including changes in tax laws. Readers should carefully consider such factors. Further, such forward-looking statements speak only on the date at which such statements are made. PIMCO undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Past Performance is no guarantee of future results. Investment return and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. For the period ended 6/30/02, the PIMCO Short-Term Fund institutional shares (after expenses) returned 3.21%, 5.59%, 5.64% and 6.26% for the 1-year, 5-year, 10-year and since inception (10/7/87) periods, respectively. For the period ended 6/30/02, the PIMCO Low Duration Fund institutional shares (after expenses) returned 6.94%, 6.72%, 6.79% and 7.78% for the 1-year, 5-year, 10-year and since inception (5/11/87) periods, respectively. Please call or write for a current PIMCO Fund prospectus containing more complete information including management fees, expenses and risks. Please read it carefully before investing or sending money. Distributed by PIMCO Fund Distributors LLC, member NASD, 840 Newport Center Drive, Newport Beach, CA 92660, (800) 927-4648.
The Short-Term Fund may invest up to 5% in foreign securities, which may entail greater risk due to foreign economic and political developments. This Fund may invest 5% in high-yield, lower-rated securities generally involves greater risk to principal than investment in higher-rated securities.
The Low Duration Fund may invest up to 20% in foreign securities, which may entail greater risk due to foreign economic and political developments. The Fund may invest up to 10% in high-yield securities, lower-rated securities generally involve greater risk to principal than investments in higher-rated securities; and may at times invest in derivatives and mortgage-related securities.
Money market funds are neither insured nor guaranteed by FDIC or any other government agency and there can be no assurance that any money market fund will be able to maintain a net asset value of $1.00 per share. Corporate debt securities are subject to the risk of the issuer's inability to meet principal and interest payments on the obligation and may also be subject to price volatility due to such factors as interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity. Mortgage-backed securities may be sensitive to changes in prevailing interest rates, when they rise the value generally declines. There is no assurance that the private guarantors or insurers will meet their obligations. Investing in foreign securities may entail risk due to foreign economic and political developments and may be enhanced when investing in emerging markets. Emerging markets are more volatile than an investment in U.S. securities. The securities of emerging markets may be less liquid and subject to the risks of currency fluctuations and political developments. An investment in high-yield securities, lower-rated securities generally involves greater risk to principal than an investment in higher-rated bonds. The credit quality of the investment in the portfolio does not apply to the stability or safety of the fund.