PIMCO Total Return Fund

Quarterly Investment Report December 31, 2012 PIMCO Total Return Fund PIMCO 840 Newport Center Drive Newport Beach California 92660 (888) 87-PIMCO www.pimco.com/investments Total Return Fund PIMCO Total Return Fund Market Commentary Fourth Quarter 2012 Market Outlook ③ Uncertainty and pessimism surrounding the fiscal cliff negotiations dominated headlines during the fourth quarter ③ The Federal Reserve enacted further monetary easing by committing to purchase $45 billion in Treasuries per month and by explicitly tying the federal funds rate to unemployment and inflation targets ③ Most fixed income sectors outperformed Treasuries during the quarter and 2012 as central bank policies helped push investors toward higher yielding assets Portfolio Recap ③ The Fund outperformed its index for the quarter and the year ③ Most sectors that trade at a spread to U.S. Treasuries outperformed as global central banks extended their commitment to monetary easing ③ The following strategies were positive for the quarter: ¾ An underweight to U.S. duration as yields rose across most of the curve ¾ An allocation to non-Agency mortgages which were supported by positive supply technicals ¾ A focus on financials, which outperformed the broader corporate market amid accommodative monetary policy and improving housing data ¾ Holdings of Build America Bonds (BABs) which outperformed like-duration Treasuries and long investment grade corporates during the quarter ¾ Exposure to emerging market local rates, especially in Brazil, as the Monetary Policy Committee cut the policy rate ③ The following strategies were negative or neutral for returns: ¾ An overweight to Agency mortgage-backed securities (MBS) which underperformed like-duration Treasuries. This was partially offset given the focus on lower coupon mortgages which outperformed on a relative basis ③ PIMCO expects the global economy to grow at a modest 1.5 to 2.0 percent over the year ahead ③ U.S. policymakers passed a last minute deal to avert majority of the “fiscal cliff” although additional negotiations will be required to deal with the sequestration. Estimated 2013 impact will be a 1.3 – 1.4 percent drag on GDP ③ PIMCO anticipates global inflation of between 2.0 and 2.5 percent over the cyclical horizon Portfolio Strategy ③ Continue to reduce risk while preferring high quality income over price appreciation, as risk premiums still appear richly priced relative to our outlook ③ Remain focused on sectors that will benefit from central bank actions that have increased liquidity and suppressed volatility ③ Selectively add high quality duration in countries with healthier balance sheets and independent monetary policy -including, Australia, Canada, Brazil, and Mexico ③ Reduce holdings in Agency mortgages to benchmark weightings as Agency MBS appear fully priced with limited upside following recent central bank actions ③ Shift credit exposure towards securities higher in the capital structure and remain cautious on the bonds of companies with economic exposure to Europe ③ Retain exposure to select corporate and quasi-sovereign bonds in countries with strong initial conditions and strong balance sheets such as Brazil and Mexico ③ Continue to hold high quality municipal bonds which have reverted to fair value; focus on essential service revenue bonds such as water and sewer, power, and airports ③ Retain longer dated Treasury Inflation-Protected Securities (TIPS) positions to protect against potentially higher long-term inflation 1 Risk Disclosures and Index Descriptions are located in the Important Information section of theAppendix Summary of Performance Data and Portfolio Statistics PIMCO Total Return Fund Institutional Class Performance Since 10-Year Return vs. Standard Deviation 12 Periods Ended 12/31/2012 Total Portfolio1 Before Fees (%) After Fees (%) (Inception 05/11/87) Inception 10 yrs 5 yrs 8.83 7.29 8.83 8.35 6.81 8.34 3 yrs 1 yr 6 mos 3 mos 10 8.25 10.86 4.60 1.28 8 7.75 10.36 4.36 1.17 6 Portfolio Index Citigroup 10-Yr. Strip Barclays U.S. Aggregate Index (%) 7.20 5.18 5.95 6.19 4.21 1.80 0.21 4 Barclays U.S. Aggregate Index (%)3 Expense Ratio The Fund`s Total Annual Operating Expenses 0.46% 0 The performance quoted represents past performance. Past performance is no guarantee of future results. Investment return and 0 principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Details regarding any Fund’s operating expenses can be found in the Fund’s prospectus. Performance data current to the most recent month-end is available at www.pimco.com/investments or by calling (888) 87-PIMCO. BofA ML 1-3 Yr. Treasury 2 4 6 8 10 12 Standard Deviation of Return2 (%) % of Market Value % of Duration Summary Information 9/30/2012 12/31/2012 Sector Allocation 9/30/2012 12/31/2012 9/30/2012 12/31/2012 Total Net Assets (USD in millions) SEC 30-Day Ann. Yield (%) Distribution Yield (%)3 Effective Duration (yrs) Benchmark Duration - Provider* (yrs) Benchmark Duration - PIMCO** (yrs) Effective Maturity (yrs) Average Coupon (%) Net Currency Exposure (%) Tracking Error (10 yrs, %)4 Information Ratio (10 yrs)4 277,679.2 1.82 2.61 4.0 4.9 4.6 5.9 3.6 0.8 2.1 0.7 285,399.8 1.64 2.74 4.8 5.1 4.7 6.1 3.6 0.8 2.1 0.7 Government-Related5 Government-Treasury Government-Agency Swaps and Liquid Rates Mortgage Invest. Grade Credit High Yield Credit Non U.S. Developed Emerging Markets Municipal Other 18 26 17 30 20 26 44 45 3 4 4 4 -5 -3 -31 -19 49 42 30 23 12 10 12 8 2 2 2 2 11 12 10 10 8 7 7 5 5 5 14 12 1 1 1 1 See example of tracking error / information ratio in Important Information section of the Appendix. *The benchmark duration as provided by Benchmark Provider **Benchmark duration as calculated by PIMCO Net Cash Equivalents:6 Commercial Paper / STIF ST Government-Related ST Mortgage ST Credit U.S. Money Market Futures/Options Non-U.S. Money Market Futures Other Less: Liabilities Total -6 -5 7 9 1 0 0 0 7 15 1 3 2 2 0 0 8 5 0 0 19 26 5 6 0 1 0 0 6 4 1 0 -49 -58 0 0 100 100 100 100 Government-Related may include nominal and inflation-protected Treasuries, agencies, interest 2 Additional Share Class Performance December 31, 2012 PIMCO Total Return Fund Net of Fees Performance Gross Net NAV Inception Since 10 5 3 1 6 3 Expense Ratio ADMINISTRATIVE Class: Expense Currency Date Inception Year Year Year Year Month Month Ratio Total Return Fund, Administrative Barclays U.S. Aggregate Index Class D: Total Return Fund, Class D Barclays U.S. Aggregate Index Class P: Total Return Fund, Class P Barclays U.S. Aggregate Index 0.71 - USD - 0.75 - USD - 0.56 - USD - Sep-08-94 Apr-08-98 Apr-30-08 8.08 6.55 7.20 5.18 8.03 6.49 7.20 5.18 8.26 6.71 7.20 5.18 8.07 7.48 10.08 4.23 1.10 5.95 6.19 4.21 1.80 0.21 8.02 7.44 10.04 4.21 1.09 5.95 6.19 4.21 1.80 0.21 8.23 7.64 10.25 4.30 1.14 5.95 6.19 4.21 1.80 0.21 The performance quoted represents past performance. 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. Current performance may be lower or higher than the performance data quoted. Details regarding any Fund’s operating expenses can be found in the Fund’s prospectus. Performance data current to the most recent month-end is available at www.pimco.com/investments or by calling (888) 87-PIMCO. 3 Market Commentary Politics Weigh Heavily on Economics In a largely status quo election, Americans voted President Barack Obama to a second term in office in November. While the President’s reelection likely cemented the fate of the Affordable Care Act and Dodd-Frank reforms, market participants quickly turned their attention to the uncertainty surrounding the impending fiscal cliff. Both political parties recognized that averting the cliff was essential to avoiding a recession in 2013, but negotiations were strained for much of the quarter with Democrats seeking increased tax revenue from the wealthiest Americans and Republicans asking for spending cuts on entitlement programs. Ultimately, hopes of a grand bargain abated and gave way to a short-term deal, thus opening the door to further fiscal negotiations, most notably on a debt ceiling increase and spending cuts (the “sequester”), in 2013. While politicians struggled to agree on fiscal policy, the Federal Reserve (Fed) unveiled new monetary policy measures to stimulate the economy. According to Chairman Bernanke, “The conditions now prevailing in the job market represent an enormous waste of human and economic potential.” With Operation Twist set to expire at the end of the year, the Committee announced that they will initiate purchases of $45 billion in Treasuries, in addition to the existing purchases of $40 billion in Agency mortgage-backed securities (MBS), each month. The Fed also took the extraordinary step of linking an increase in the federal funds rate to specific economic targets. Rates will stay low, between 0 and 0.25 percent, at least as long as the unemployment rate remains over 6.5 percent and projected inflation is below 2.5 percent. These targets replace the Fed’s previous statement that rates would remain low through at least the middle of 2015. U.S. interest rates reversed a downward trend and rose during the fourth quarter of 2012. The 10-year U.S. Treasury yield increased 12 basis points during the quarter to end December at 1.76 percent. The U.S. Treasury yield curve steepened as the 2-year U.S. Treasury yield rose 2 basis points while the 30-year Fourth Quarter 2012 U.S. Treasury yield rose 13 basis points. Yields in most eurozone countries fell as investors responded to the European Central Bank’s program of Outright Monetary Transactions and Mario Draghi’s commitment to support the euro. Spanish and Italian 10-year yields fell 67 and 60 basis points respectively during the quarter. The Barclays U.S. Aggregate Index, a widely used index of U.S. high-grade bonds that includes Treasuries, returned 0.22 percent during the quarter, and most fixed income sectors that trade at a spread to U.S. Treasuries outperformed on a duration-adjusted basis. Despite the rhetoric surrounding the fiscal cliff and the damage from Hurricane Sandy, there were positive economic data released during the quarter. According to gross domestic product (GDP) data, the U.S. economy grew at a higher than expected 3.1 percent annual rate during the third quarter, up from 1.3 percent during the second quarter. The housing market continued to show improvement during the fourth quarter amid record low mortgage rates. In October, the S&P/Case-Shiller Index of property values in 20 cities increased 4.3 percent from a year earlier, and sales of existing homes rose 5.9 percent to an annual rate of 5.04 million, the highest level in three years, according to the National Association of Realtors. The unemployment rate fell to 7.8 percent during the quarter, representing a four year low. Most Fixed Income Sectors Outperform U.S. Treasuries The following summarizes fixed income sector returns during the fourth quarter of 2012: ③ Agency MBS underperformed like-duration Treasuries in the fourth quarter but outperformed for the year. An increase in prepayment speeds coupled with profit taking following the Fed’s third round of Quantitative Easing (QE3) announcement led to the relative underperformance. While the sector as a whole underperformed, volatility remained in relative valuations between coupons as lower origination coupons fared better amid the Fed’s support. Commercial 4 ... - tailieumienphi.vn