October 21, 2019 BARRON’S 25
have improved dramatically since the
crisis, making it the “fastest-growing
economy in the euro zone.”
The fund also favors some British
banks, even though the economic back-
drop is considerably murkier. “The
United Kingdom is an interesting case
study of very strong fundamentals for
the banks, which are the best in Eu-
rope in terms of capital and liquidity,
but you have this relentless amount of
headline risk coming from Brexit,” Bo-
dereau says. He favors the largest
names, such as Lloyds Banking Group
(LYG) and Barclays (BCS), but is
keeping an eye on Brexit-related vola-
tility for opportunities to buy or sell.
At the end of August, Bodereau had
a 48% weighting in U.S. preferreds—
although that’s a significant under-
weight position for him, considering
the size of U.S. securities markets.
Still, the preferred market in the
U.S. has a lot of inefficiencies for Bo-
dereau to exploit. For instance, some
preferred shares have interest rates
that are fixed for life, while others are
fixed when issued but convert to float-
ing rates after five to 10 years. Most
retail investors favor fixed-for-life se-
curities because they are often retirees
seeking a predefined income level. But
fixed-rate securities are inversely cor-
related with interest rates, meaning
they fall in value when rates rise.
That’s because new debt issued at
higher interest rates becomes more
attractive in comparison. And floating-
rate preferreds generally yield more.
“Instead of buying Bank of America
fixed-for-life [preferreds], I can buy
Bank of America floating ones, and
typically the yield differential would be
at least [0.5 of a percentage point],” he
says. He has no fixed-for-life holdings
for this reason, though he always
searches the entire preferred universe
for the best yields. Currently, a Bank
of America (BAC) preferred with a
5.875% coupon yield is the fund’s larg-
est holding, according to Morningstar.
Bodereau says BofA is a “very
strong bank” and he is not only get-
ting a significant yield bump over com-
parable fixed-for-life preferreds, but
also over more senior debt at a bank
he now considers secure—a remark-
able shift after 2008’s credit crisis.
Generally in investing, you have to
risk more to increase returns, but
bank regulation has improved this
fund's gains while reducing the risks
it takes.
amazing,” Bodereau points out. “It had
one of the lowest debt-to-GDP ratios
in the world, but you would have
missed that the banks had lots of is-
sues with overleverage.” So Pimco had
very limited exposure to Ireland. Dur-
ing the same period, Greek banks had
healthy balance sheets, but Pimco
avoided those stocks, as well, because
of the country's struggling economy.
More recently, Bodereau has man-
aged to find some bright spots in Eu-
rope. His position in Spain, at 7% of the
fund, outpaces his benchmark’s 2%.
AT1s for Banco Santander (SAN) are
a top position. “Spain had a big banking
crisis in 2012, and it did a very efficient
and radical restructuring of the bank-
ing sector,” he says. “All of those [trou-
bled] banks were sold or liquidated,
which means that the structure of the
market has become less competitive
and more oligopolistic. Therefore, the
big banks are doing better.” He also
likes that Santander isn’t just exposed
to Spain, and has a broader European
and Latin America bank business.
Macro conditions in Spain, however,
PimcoPreferredand
Capital Securities
Note: Holdings as of 6/30. Returns through 10/14; three-year returns
are annualized.
Sources: Morningstar; Pimco
Total Return
YTD 1-Yr 3-Yr
PFANX 15.8% 11.4% 8.2%
Preferred Stock
Category
15.9 11.4 5.5
Top 10
Preferred Securities
%of
Net Assets
Company /
Yield and Maturity
Bank of America /
5.87% 3/15/28
3.3%
BNP Paribas / 7% 8/16/28 3.0
Credit Agricole /
7.5% 6/23/26
2.6
ING Groep / 6.5% 4/16/25 2.5
JPMorgan Chase /
6.05% 7/30/19
2.4
Rabobank / 4.625% 12/29/25 2.1
Deutsche Bank /
2.625% 2/12/26
2.0
HSBC Capital Funding /
5.84% 11/5/31
1.8
Citigroup / 6.3% 5/15/24 1.7
JPMorgan Chase /
4.625% 11/1/22
1.7
Total 23.1
Scoreboard: OpioidHigh
(U.S.stockfundshadarobustweek,up2.46%,liftedbytradeoptimism.Theleadingsector:healthand
biotechstocks,whichreboundedover4%,fueledpartlybyopioid settlementtalks. Metalssettledback.
OneWeek Year-to-Date
U.S.STOCKFUNDS 2.46% 19.03%
TOPSECTOR/Health/BiotechnologyFunds 4.03 9.03
BOTTOMSECTOR/PreciousMetalsEquityFunds – 3.12 26.06
S&P500 2.04 19.59
U.S.BONDFUNDS – 0.03 7.39
BloombergBarclaysAGGBond – 0.34 7.36
THEWEEK'STOP25
Fund InvestmentObjective OneWeek Year-to-Date
DFAUKSmCompanyI/DFUKX EuropeanRegion 8.84% 20.0%
CannabisGrowthInst/CANIX Specialty&Misc 7.33 NA
FidelitySelHealthCare/FSHCX Health/Biotech 6.78 1.5
Tarkio/TARKX Mid-CapCore 6.71 21.8
TowleDeepValue/TDVFX Small-CapValue 6.57 12.8
FranklinStrBDA/FBDIX Health/Biotech 6.21 11.5
ThirdAvenueValueInst/TAVFX GlobalMulti-CapValue 6.08 4.7
MillerOpportunityI/LMNOX Multi-CapCore 5.88 17.6
PzenaIntlSmCpValInst/PZIIX IntlSm/Mid-CapValue 5.88 1.8
SmallCapValueFund/SCAPX Small-CapValue 5.88 – 11.2
VulcanValPSCInv/VVPSX Small-CapCore 5.69 22.6
BiondoFocusInv/BFONX Multi-CapGrowth 5.63 12.2
NatixisOakmarkIntlA/NOIAX IntlMulti-CapValue 5.57 15.9
EventideHlthcare&LSI/ETIHX Health/Biotech 5.45 14.8
DriehausMicroCapGro/DMCRX Small-CapGrowth 5.43 18.9
GMOSpecOpptysFdVI/GSOFX AltGlobalMacro 5.40 22.4
OakmarkInternatlInv/OAKIX IntlMulti-CapValue 5.38 15.9
ICONOpportunities/ICONX Small-CapCore 5.37 25.2
HotchkisIntlValueI/HWNIX IntlMulti-CapValue 5.35 11.6
EmeraldGrowthInst/FGROX Small-CapGrowth 5.32 17.4
OakmarkGlobalInv/OAKGX GlobalMulti-CapValue 5.28 21.3
FranklinIntlGroAdv/FNGZX IntlMulti-CapGrowth 5.24 25.4
OakmarkIntlSCInst/OANEX IntlSm/Mid-CapCore 5.20 20.4
PGIMJennHealthSciZ/PHSZX Health/Biotech 5.19 4.3
AMGMgSkylineSpEN/SKSEX Small-CapCore 5.18 18.9
THEWEEK'SBOTTOM10
Fund InvestmentObjective OneWeek Year-to-Date
MidasFund/MIDSX PreciousMetalsEq – 5.15% 19.4%
NvgtrSentryMgdVolI/NVXIX EquityMktNeutral – 4.76 – 39.7
FidelitySelGold/FSAGX PreciousMetalsEq – 4.43 23.0
TransamConcGrowthI2/ Multi-CapGrowth – 4.25 14.0
AltegrisGSATrendStrN/TRNNX AltMulti-Strategy – 4.11 0.2
VanEckIntlGoldA/INIVX PreciousMetalsEq – 4.09 25.6
WellsFargoPrecMetA/EKWAX PreciousMetalsEq – 4.03 28.6
AmerCentGlGoldInv/BGEIX PreciousMetalsEq – 4.02 26.8
GabelliGoldAAA/GOLDX PreciousMetalsEq – 3.82 26.8
USAAPrecMet&MinFund/USAGX PreciousMetalsEq – 3.45 29.7
THELARGEST25
Assets 3-Year* 1-Week YTDFund (billions) InvestmentObjective Return Return Return
FidelityContrafund/FCNTX $91.0 Large-CapGrowth 16.1% 1.87% 20.0%
VanguardWellingtonAdm/VWENX 90.8 MixTgtAllGro 10.4 1.17 16.5AmericanFundsGroA/AGTHX 86.7 Large-CapGrowth 14.1 2.47 17.5
AmericanFundsIncA/AMECX 74.1 MixTgtAllMod 7.8 1.06 12.9AmericanFundsBalA/ABALX 72.6 MixTgtAllGro 9.3 1.20 13.2
AmericanFundsEuPcR6/RERGX 70.2 IntlLarge-CapGrowth 8.9 2.38 17.7Dodge&CoxStock/DODGX 69.4 Large-CapValue 11.9 3.46 13.4
PIMCOIncomeInst/PIMIX 68.5 Multi-SectorInc 5.4 0.27 5.9AmericanFundsCIBA/CAIBX 64.6 GlobalEquityIncome 6.3 1.22 12.0
Dodge&CoxIncome/DODIX 62.3 CoreBond 3.8 – 0.07 8.7AmericanFundsICAA/AIVSX 59.8 Large-CapCore 10.3 1.97 14.5
AmericanFundsWashA/AWSHX 59.6 Large-CapCore 13.5 1.95 17.3VanguardPRIMECAPAdm/VPMAX 57.2 Large-CapCore 15.0 2.62 14.9
PIMCOTotRtnInst/PTTRX 52.9 CorePlusBond 3.7 – 0.32 8.3AmericanFundsFInvA/ANCFX 52.2 Large-CapCore 12.3 2.51 16.9
AmericanFundsCWGIA/CWGIX 50.7 GlobalLarge-CapCore 10.0 2.31 16.5Dodge&CoxIntlStock/DODFX 47.2 IntlLarge-CapCore 6.7 4.20 13.5
DoubleLineTotRtnI/DBLTX 47.1 USMortgage 3.2 – 0.28 5.8VanguardWellesleyAdm/VWIAX 45.1 MixTgtAllocCon 6.9 0.40 13.4
MetWestTotalReturnI/MWTIX 45.0 CorePlusBond 3.2 – 0.32 8.6VanguardTgtRet2025Inv/VTTVX 44.1 Mixed-AssetTarget2025 8.5 1.30 14.3
AmericanFundsNPerA/ANWPX 42.6 GlobalLarge-CapGrowth 13.4 2.10 19.9VanguardSh-TmInvAdm/VFSUX 42.5 ShortInvGrade 2.5 – 0.04 5.3
FidelityStrAdvCreInc/FPCIX 42.4 GeneralBond 3.6 – 0.27 8.7TRowePriceBCGro/TRBCX 41.1 Large-CapGrowth 19.2 2.16 20.4
*Annualized10/13/2016to10/17/2019.ThroughThursday. Source:Lipper