Mortgage-backed securities may have tanked the U.S. economy and many of its banks. Not so for Pimco [profile] Income Fund. Barron's profiles Dan Ivascyn, detailing how "picking through the rubble of the financial crisis" — as writer Michael Aneiro puts it — has worked out for the fund PM.

Famously, according to the $9.9 billion fund's annual returns in the past few years. After an initial 5.95 percent loss in 2008, the fund went on to achieve returns of 18.64 percent, 19.96 percent and 5.95 percent in the years following, as well as a second best-in-category 10.63 percent this year to date. Aneiro also points out here that its expense ratio is only 0.80 percent.

The fund is now primarily invested in mortgage-backed securities — 24 percent in agency MBS and 19 percent in nonagency residential MBS to be exact.

"It was a big benefit being relatively underweight nonagency mortgages leading into the crisis environment," says Ivascyn. "Yet as the crisis progressed, these assets became out of favor, and as people began selling them somewhat indiscriminately into the marketplace, we began adding to those positions."

Note that the fund generally avoids junk bonds in favor of bank loans, which it views as ranking highly among creditors getting repaid in a bankruptcy or default. Some of the fund's major holdings include a Hilton Hotels bank loan and a Springleaf Financial senior-secured bank loan.

Meanwhile, the fund restricts its European exposure to a handful of financial institutions including Barclays in core countries, some residential and commercial mortgages, and a handful of bonds backing Russian gas company Gazprom.  

Edited by: Irene Park


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