PIMCO EM Fundamental IndexPLUS® TR Strategy Fund (PEFIX ) is an emerging market mutual fund with an expense ratio of 1.25% which is the 5th lowest expense ratio out of the 16 funds ranked 5 star by Morningstar.
According to the prospectus PEFIX’s return After Taxes on Distributions and Sales of Fund Shares since inception (11/26/2008) is 20%. In 2009 it was 93%, in 2010 25.86% and in 2011 -16.80%. When comparing PEFIX to the MSCI Emerging Markets Index, PEFIX outperformed the Index in all three years.
Below is the fund’s Country Allocation as of 06/30/2012:
|
United States |
84.93% |
|
Canada |
5.02% |
|
France |
2.15% |
|
Australia |
1.65% |
|
Cayman Islands |
1.53% |
|
United Kingdom |
1.26% |
|
Italy |
0.52% |
|
Luxembourg |
0.45% |
|
Netherlands |
0.39% |
|
South Korea |
0.31% |
As of 10/31/2012 PEFIX has $5,619,500 in total fund assets and
1050 holdings. Out of the 1050 holdings, 996 are long and 54 are short.
The fund’s top 10 holdings represent 56.58% of the total portfolio assets, which is much higher than the Diversified Emerging Markets Average of 19.18%.
These holdings and their percentage of the fund’s net assets are below:
– Fannie Mae Single Family TBA 4% 2042-07-01 10.10%
– Fannie Mae Single Family TBA 3.5% 2042-08-01 6.93%
– Fannie Mae Single Family TBA 5.5% 2042-07-0 6.83%
– Fin Fut Euro$ Cme 03/16/2015 4.54%
– Fannie Mae Single Family TBA 4.5% 2042-08-01 3.54%
– Fannie Mae Single Family TBA 4.5% 2042-07-01 3.32%
– US Treasury Bond 2.375% 3.32%
– Fannie Mae Single Family TBA 3.5% 2027-07-01 3.11%
– Fannie Mae Single Family TBA 4% 2042-08-0 2.92%
– Cdx Ig18 5y Cme -11.96%
The last position is negative because it is a holding in a credit default index. The credit default index position is a derivative used by the fund management as a tool to balance out the portfolio.
It might seem unusual that the top 10 holdings in an EM fund are domestic instruments. The reason is because PEFIX does not necessarily directly invest in EM securities, but according to the prospectus, it invests in derivatives that capture the returns of the EM eRAFI® and backing those instruments with actively managed fixed income securities. These fixed income instruments may be represented by forwards or derivatives, such as options, futures contracts, or swap agreements. They may also include bonds, debt securities and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities.
The EM eRAFI® weighs stocks using four fundamentals-based factors: sales, cash flow, book value, and dividends. This is unlike traditional stock indexes, which are weighted by market capitalization. By doing this, the EM eRAFI® aims to avoid the usual pitfall of market cap indexing –underweighting undervalued stocks and overweighting overvalued ones.
According to the prospectus, the fund diversifies its investments for the sake of risk management. The fund may invest “up to 10% of its total assets in high yield securities (“junk bonds”) rated B or higher” by top rated services and 15% of its total assets in securities and instruments that are economically tied to emerging market countries. With respect to the Fund’s fixed income investments, the Fund may invest, without limitation, in securities denominated in foreign currencies and in U.S. dollar-denominated securities of foreign issuers. The Fund also normally limits its foreign currency exposure to 20% of its total assets. The Fund may also invest up to 10% of its total assets in preferred stocks.