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Fund Spy: Morningstar Medalist Edition

A Bronze-Rated Fund That Charts Its Own Course Around the World

PIMCO Global Advantage Strategy Bond avoids heavily indebted nations, but still has its risks.


 PIMCO Global Advantage Strategy Bond (PSAIX) charts its own course. It uses country gross domestic product rankings as the foundation for its custom benchmark--the PIMCO Global Advantage Bond Index (GLADI)--rather than the traditional capitalization-based approach. As a result, compared with many of its peers, the fund tends to downplay indebted regions like the U.S., eurozone, and Japan while emphasizing countries that have higher incomes to help pay their debts, including many in the developing world. The custom benchmark's broad range of sectors and currencies provides an attractive level of diversification.

Managers Andrew Balls, Mohamed El-Erian, and Ramin Toloui channel PIMCO's broader macroeconomic views when taking active bets versus the benchmark. Dialing down risk has been a firmwide mantra this year, and the managers have reduced the fund's duration, credit, and currency risk. Those moves included underweighting its exposure to longer-dated maturities and reducing its emerging-markets stake. Despite such caution, this fund's midteens emerging-markets stake was a headwind as that sector was particularly hard-hit when bond markets sold off from May through July. As a result, the fund's 5% loss for that period was worse than 70% of its peers. The fund lagged in a similar fashion during the flight to quality of August and September 2011.

Karin Anderson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.