PLANSPONSOR - April/May 2018 - 15

bonds in a capital-efficient structure may
offer additional return potential over equities
(i.e., the long bond yield) and improved
diversification years into the future.
Systematic, or structural, equity strategies
may offer excess returns higher than
returns available from traditional stock
picking. Systematic strategies seek to
benefit from the discipline of an unemotional,
rules-based decision-making
process while sharing many of the same
investment objectives.
Moving toward
retirement security
As fixed income allocations peak in retirement,
the potential outperformance of
actively managed fixed income becomes
even more important in forging successful
retirement outcomes. And while there
may be no perfect solutions, steps to
improve DC menus and the efficacy of
investments take on new urgency.
Richard Fulford is an Executive Vice
President and Head of U.S. Retirement.
i As of 31 December 2017
Based on prospectus net expense ratio of activelymanaged
funds relative to " Index Fund " strategies, as
defined by Morningstar. Average fee premium based
on average premium across the fixed income and
equity Morningstar categories specified below.
Based on Morningstar U.S. ETF and U.S. Open-End
Fund Categories (Institutional shares only). Large cap
represented by Morningstar U.S. Large Cap Blend
category, Small Cap represented by Morningstar U.S.
Small Cap Blend category, Global (equities) represented
by Morningstar World Equity category, Core
represented by Morningstar Intermediate-Term Bond
category, High Yield represented by Morningstar U.S.
High Yield Bond category, Global (bonds) represented
by Morningstar World Bond category.
ii
Refers to intermediate-term, global and high yield
bonds, three of the largest fixed income categories
in DC plans.
iii
Refers to large cap, small cap and global, three
of the largest equity categories in DC plans.
iv
Management in 12 Points "
v
Ibid.
" Bonds Are Different: Active Versus Passive
Past performance is not a guarantee or a reliable indicator of future results. All investments
contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest
rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are
impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more
sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise,
and the current low interest rate environment increases this risk. Current reductions in bond counterparty
capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may
be worth more or less than the original cost when redeemed. Equities may decline in value due to both
real and perceived general market, economic and industry conditions. Investing in foreign-denominated
and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and
political risks, which may be enhanced in emerging markets. Diversification does not ensure against loss.
Glide Path is the asset allocation within a Target Date Strategy (also known as a Lifecycle or Target
Maturity strategy) that adjusts over time as the participant's age increases and their time horizon to retirement
shortens. The basis of the Glide Path is to reduce the portfolio risk as the participant's time horizon
decreases. Typically, younger participants with a longer time horizon to retirement have sufficient time to
recover from market losses, their investment risk level is higher, and they are able to make larger contributions
(depending on various factors such as salary, savings, account balance, etc.). Generally, older participants
and eligible retirees have shorter time horizons to retirement and their investment risk level declines
as preserving income wealth becomes more important.
Hypothetical examples are for illustrative purposes only. No representation is being made that any account,
product, or strategy will or is likely to achieve profits, losses, or results similar to those shown. Hypothetical
or simulated performance results have several inherent limitations. Unlike an actual performance record,
simulated results do not represent actual performance and are generally prepared with the benefit of
hindsight. There are frequently sharp differences between simulated performance results and the actual
results subsequently achieved by any particular account, product or strategy. In addition, since trades have
not actually been executed, simulated results cannot account for the impact of certain market risks such as
lack of liquidity. There are numerous other factors related to the markets in general or the implementation of
any specific investment strategy, which cannot be fully accounted for in the preparation of simulated results
and all of which can adversely affect actual results.
References to specific securities and/or issuers are not intended and should not be interpreted as recommendations
to purchase, sell or hold such securities. PIMCO products and strategies may or may not include
securities referenced and, if such securities are included, no representation is being made that such securities
will continue to be included.
Statements concerning financial market trends or portfolio strategies are based on current market conditions,
which will fluctuate. There is no guarantee that these investment strategies will work under all market
conditions or are suitable for all investors and each investor should evaluate their ability to invest for the
long term, especially during periods of downturn in the market. Outlook and strategies are subject to change
without notice. Performance results for certain charts and graphs may be limited by date ranges specified
on those charts and graphs; different time periods may produce different results.
This material contains the opinions of the manager and such opinions are subject to change without notice.
This material has been distributed for informational purposes only and should not be considered as investment
advice or a recommendation of any particular security, strategy or investment product. Information
contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of
this material may be reproduced in any form, or referred to in any other publication, without express written
permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and
throughout the world. Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport
Beach, CA 92660, 800-387-4626. ©2018, PIMCO.
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