Bond by Bond

Investing With Conviction in America’s Future

Learn how PIMCO combines its top-down views with extensive bottom-up research to identify opportunities in the municipal bond market.

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Aerial shot of a skyscraper under construction and workers building it.

David Hammer, Head of Municipal Bond Portfolio Management: My name is David Hammer and I’m the head of municipal bond portfolio management here at PIMCO.

Shots of David Hammer walking on a city street by a construction site.

Very early in my career I looked at the types of assets that the muni market finances. I saw roads and brides, tunnels, hospitals, all things that I could see and I would rely on in my daily life. And the municipal bond market makes all that possible.

Text on screen: Bond by Bond - Investing with Conviction in America's Future

Text transitions away revealing Sean McCarthy looking out a window at a construction site.

Sean McCarthy, Head of Municipal Credit Research:Everyone has a connection to munis in some respect. It’s part of the infrastructure of America. My name is Sean McCarthy, I work at PIMCO. I’m the head of municipal credit research and I work in New York.

Shot of a woman working on a computer at her desk.

The analysts on my team, every day we get the opportunity to look at something new, grow our skill set, challenge ourselves to be good stewards of client money.

Shots of Sean and David having a conversation at their desks followed by them working at their desks.

Munis are a very diverse asset class with a number of things you probably would never think to get financed that actually comes through our market.

David:There’s some projects that we look at based on a geographic region that’s growing faster than others. Other projects that we’ve looked at include public/private partnerships.

Shots of an airplane landing and an aerial view of an airport.

Most recently we’ve invested in projects to modernize airport terminals at major American airports.

Shots of PIMCO employees working.

And while we are certainly very proud of the work that we do in terms of building infrastructure and building America, we’re managing money for investors.  

Shot of Sean and David walking through hallway.

What helps us as portfolio managers is knowing that Shawn and his team are very thorough, very diligent,

Shots of a small meeting happening around a table.

are thinking about credits, not just based on what’s happened historically, but what’s gonna happen in the future.

Sean: I am a credit analyst first, a municipal analyst second and actually part of the global credit research team.

Shot of large meeting around a large table.

Graphic: The graphic depicts circles, the largest being credit research which is overarching. All the other circles relative to credit research are the same size and smaller (financials, industrials, consumer products, telecom/media, energy, utilities, municipals, specialists, metals/mining, distressed credit).

So we not just benefit from sharing ideas amongst ourselves, and among the municipal portfolio managers, but we also benefit from really the firepower and the informational advantage that we have from being part of this much larger organization.

Graphic: The graphic is a globe, a list of PIMCO office locations and a breakdown of investment professionals across the firm.

David:We tie that together in our investment process. We start with macro. US GDP, inflation, interest rate volatility…

Sean:You need some sort of baseline view for how you think the economy’s going to perform over the next 12 to 18 months.

Shot of Sean walking to a desk and reviewing documents.

And once you establish that, then you can really drill down and start looking through individual asset class and picking bonds — picking bonds that you think are going to perform the best.

David:One area we’ve seen a lot of opportunity is in the assisted living or retirement community space.

Chart: The double line graph compares the growth and projected growth in the number of people in the U.S. 65 and older versus 85 and older from 1900 to 2010 and then projected from 2020 to 2050. Over 65 grows the most and increasing dramatically after 2010; over 85 grows moderately and increase slightly over 2010.

The percentage of people 70 to 80 years old is poised to grow over the next decade as baby boomers retire. We see that as a tailwind for the sector. It’s also an area that we can overlay a lot of our housing analysis and think about capacity and demand.

An aerial shot of a neighborhood.

Sean:When you look at these facilities, you have to recall that close to 70-80% of the occupancy levels is coming from a very small radius around that facility.

Graphic: A map of the state of Indiana that zooms into a detailed map of Chesterton, Indiana with a legend.

David:So we seek to avoid areas where maybe there’s too much capacity of retirement communities and one thing that Shawn and his team spent a lot of time on is researching the operator.

Shots of Sean McCarthy exiting an elevators, walking through a floor of a building under construction and talking with a construction manager.

Sean:So when we can we travel, we meet with management. We will get out there and look at the facilities. Because it’s not enough to look at something on paper. If we are going to invest our clients money we need to have conviction. This active process of analyzing investments on the ground is a key part of our bottom up research.

Shot of a spreadsheet, shot of Sean and David leaving an office room and shots of David working at his desk.

David:So in the municipal market, we look at everything through the lens of after tax total return. It’s not just what you earn in portfolios, it’s what you keep.

Sean:Clients continue to come first here at PIMCO.

Shots of Sean working at his desk.

Whenever I look at a new investment, I'm really focused on what the risks are. I'm really focused on whether or not my client is going to lose money if we make this investment.

Shot of Sean and David talking to each other across their desks, shot from a small meeting and shot of Sean working at his desk.

At the same time I'm looking for the best opportunity for my clients.

David:We take that responsibility very seriously, and we’re proud that investors reward us with their capital to do that every day.

Shot of Sean and David walking down a hallway.

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