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Pimco’s Sonali Pier lets her ‘cautious contrarianism’ speak for itself: The bets she’s making now

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    Sonali Pier is a portfolio manager with Pimco

    Pimco’s Sonali Pier strives for outperformance.

    The youngest of three and the daughter of Indian immigrants, Pier set her sights on Wall Street after graduating from Princeton University in 2003. She began her career at JPMorgan as a credit trader, a field that doesn’t have a lot of women.

    “In the ladies room, I don’t bump into a lot of people,” said Pier, who moved from New York to California in 2013 to join Pimco.

    Fortunately, she’s seen a lot of changes over the years. There has not only been some progress for women entering the financial business, but the culture has also changed since the financial crisis to become more inclusive, she said. Plus, it’s an industry where there is clear evidence of performance, she added.

    “There’s accountability,” she said, in a recent interview. “Therefore, the gender role starts to break down a little bit. With responsibility and accountability and a number to your name, it’s very clear what your contributions are.”

    Pier has risen through the ranks since joining Pimco and is now a portfolio manager within the firm’s multi-sector credit business. The 42-year-old mother of two credits mentors for helping her along the way, as well as her husband for supporting her and moving to California sight unseen. Her father also raised her to value education and hard work, Pier said.

    “He was the quintessential example of the American dream,” she said. “Being able to see his hard work and a lot of progress meant that I never thought otherwise, that hard work wouldn’t lead to progress.”

    Pier’s work has not gone unnoticed. Morningstar crowned her the winner of the 2021 U.S. Morningstar Award for Investing Excellence in the Rising Talent category.

    “Pier’s cautious contrarianism and rising influence at one of the industry’s premier and most internally competitive fixed-income asset-management firms stands out,” Morningstar said at the time.

    Putting her investment strategy to work

    Pier is the lead manager on Pimco’s Diversified Income Fund, which was among the top performers in its class — ranking in the 13th percentile on a total return basis in 2023, according to Morningstar. It has a 30-day SEC yield of 5.91%, as of Jan. 31.

    “We’re really broadly canvassing the global landscape, and then looking for where there’s the best opportunities,” Pier said. “It’s getting the interest rate sensitivity from investment grade, high-quality parts of EM [emerging markets], and the equity-like sensitivity from high yield and the low-quality parts of EM.”

    The fund also invests in securitized assets, with about 23% of the portfolio is allocated to the sector, as of Jan. 31.

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    Pimco Income Diversified Fund

    While the fund has a benchmark, the Bloomberg Global Credit Hedged USD Index, it is “benchmark aware” and doesn’t “hug it,” Pier said.

    Morningstar has called the fund a “standout.”

    “Pimco Diversified Income’s still ample staffing, deep analytical resources, and proven approach make it a top choice for higher-yielding credit exposure,” Morningstar senior analyst Mike Mulach wrote in January.

    It hasn’t always been smooth sailing. The fund has more international holdings and a more credit-risk-heavy profile than its peers, which has sometimes “knocked the portfolio off course,” like it did in 2022 during the Russia-Ukraine conflict, Mulach said. Still, he likes it over the long term.

    So far this year, the fund is relatively flat on a total return basis.

    In addition to also leading PDIIX, Pier is also a manager on a number of other funds, including the PIMCO Multisector Bond Active ETF (PYLD), which was launched in June 2023. It currently has a 30-day SEC yield of 5.12%, as of Tuesday, and an adjusted expense ratio of 0.55%.

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    Multisector Bond Active Exchange-Traded Fund performance since its June 21, 2023 inception.

    “It’s maximizing for yield, while looking for capital appreciation, and obviously, with the same Pimco principles of wanting to keep up on the upside, but manage that downside risk,” she said.

    Where Pier is bullish

    Right now, Pier prefers developed markets over emerging markets and the U.S. over Europe.

    Within investment-grade corporate, she likes financials over non-financials. Credit spreads have widened in financials over the concerns about regional banks, she said.

    “Maybe some of it’s warranted for the fact that they need to issue significant supply year after year, but we think that the metrics of, say, the big six … look quite resilient on a relative basis,” Pier said.

    Within corporate credit, the team looks at the “full flexibility of the toolkit,” she noted. That could include derivatives and cash bonds, she added.

    “Are we looking at the euro bond or the dollar bond in the same structure? The front end or the long end? Cash versus derivatives? However we can most efficiently express our view and trade that will lead to the best total return,” Pier said.

    She also likes securitized assets, which she said can be a lot more resilient during a downturn. One of Pier’s preferences is the legacy non-agency mortgage-backed securities market.

    “We have the data on how long they’ve been in the home, how much home equity has been built, what their mortgage rate is, what’s been their alacrity to pay, so we can see — is there any delinquency?” she said. “We have a lot of data there and a lot of comfort around that asset class.”

    Agency mortgage-backed securities are also attractive and could be a good substitution for single-A rated corporate debt, she said.

    About 60% of homeowners have a mortgage rate below 4%, according to a Redfin analysis of data from the Federal Housing Finance Agency’s National Mortgage Database.

    “It’s more liquid, implicitly guaranteed by the government and it’s a pretty similar spread,” she said.

    Pier finds the work exciting and encourages women to join her in the business.

    “Anyone can excel who wants to really put in the work and wants to bet on themselves,” she said.

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