Mark Kiesel

Portfolio Manager
PIMCO

Investors spooked by the current market volatility may be encouraged to move cash from the sidelines by attractive yields in investment-grade debt.

Mark Kiesel, portfolio manager of the PIMCO Investment Grade Corporate Bond Fund, sees bargains in the credit markets, particularly in corporate bonds rated BBB or higher. “Over the last six months, we've increasingly become more bullish on the investment-grade market,” Kiesel said on a national conference call in late January.

With default rates vaulting higher in the wake of massive dislocations in credit markets, PIMCO favors debt issued by high-quality companies with strong balance sheets as opposed to lower-rated companies with a lot of senior debt on their books.

Currently, Kiesel believes that high-quality credit is more attractive than equity markets. He is seeing yields in the senior part of the capital structure that rival equity returns.

In a market environment where there is no nominal growth and dividends are being cut, it makes more sense to favor credit and keep your equity risk to a minimum, Kiesel added.

Overall, PIMCO maintains a predominantly cautious view of the global economy. Consumer spending and housing prices will remain depressed. Similarly, lending, credit recirculation and securitization have a long road toward recovery. “Companies are going to face a lot of headwinds over the next several years,” Kiesel said.

One area where PIMCO has high conviction, however, is in banking. Financial institutions with big depositors – those deemed too big to fail – are an attractive play because monetary policy and government-sponsored fiscal stimulus efforts will keep credit circulating and ensure their stability. Other market segments that show promise include utilities, healthcare and telecom along with certain corners of the energy sector.

He looks to take advantage of historically wide spreads for selected preferred stock not seen since the Great Depression. “Our conservative posture has really benefited us,” Kiesel said. The current environment enables him to invest tactically in high-quality companies that issue high-quality bonds, he said.

For a more in-depth overview of Mark Kiesel’s conference call, click here to download the PDF.