Sonali Pier of Pimco is using her "cautious contrarianism" to make her bets now.

Pimco's Sonali Pier strives for outperformance.

A credit trader at JPMorgan, Pier is the youngest of three and the daughter of Indian immigrants. She graduated from Princeton University in 2003 and set her sights on Wall Street.

Pier, who moved from New York to California in 2013 to join Pimco, stated that he doesn't often bump into people in the ladies room.

Over the years, she has witnessed significant changes in the financial industry, including progress in women's entry into the business and a shift in culture towards inclusivity. Additionally, the industry's clear evidence of performance makes it an attractive option, she stated.

"Responsibility and accountability contribute to breaking down gender roles, as it becomes clear what one's contributions are."

Since joining Pimco, Pier has progressed to become a portfolio manager in the firm's multi-sector credit business. The 42-year-old mother of two acknowledges the support of mentors, her husband, and her father, who instilled in her the importance of education and hard work.

"She stated that he embodied the quintessential American dream, and seeing his hard work and progress convinced her that hard work always leads to progress."

Morningstar recognized Pier as the winner of the 2021 U.S. Morningstar Award for Investing Excellence in the Rising Talent category.

At one of the industry's top fixed-income asset-management firms, Morningstar noted Pier's cautious contrarianism and growing influence.

Putting her investment strategy to work

As the lead manager of Pimco's Diversified Income Fund, Pier oversaw a fund that was among the top performers in its class in 2023, ranking in the 13th percentile on a total return basis. The fund's 30-day SEC yield was 5.91% as of Jan. 31.

"We're broadly canvassing the global landscape and looking for the best investment opportunities," Pier said. "We're getting interest rate sensitivity from investment grade, high-quality parts of emerging markets, and equity-like sensitivity from high yield and low-quality parts of emerging markets."

As of Jan. 31, approximately 23% of the fund's portfolio is invested in securitized assets.

The fund is "benchmark aware" and doesn't "hug it," as it has a benchmark, the Bloomberg Global Credit Hedged USD Index, said Pier.

Morningstar has called the fund a "standout."

In January, Morningstar senior analyst Mike Mulach stated that Pimco Diversified Income's ample staffing, deep analytical resources, and proven approach make it a top choice for higher-yielding credit exposure.

The fund has a higher concentration of international holdings and a greater credit risk profile than its peers, which has occasionally caused the portfolio to deviate from its course, as seen in 2022 during the Russia-Ukraine conflict. Despite this, Mulach believes it is a sound investment for the long term.

This year, the fund's total return has been relatively flat.

In addition to leading PDIIX, Pier also manages several other funds, including PIMCO Multisector Bond Active ETF (PYLD), which was launched in June 2023. Currently, PYLD has a 30-day SEC yield of 5.12% and an adjusted expense ratio of 0.55%, as of Tuesday.

She stated that the investment strategy is focused on maximizing yield while also seeking capital appreciation, all while adhering to the same Pimco principles of maintaining an upward trajectory while managing downside risk.

Where Pier is bullish

Currently, Pier favors established markets, particularly the U.S., over emerging markets and Europe.

She prefers financials over non-financials within investment-grade corporate, citing widened credit spreads in financials due to concerns about regional banks.

Pier stated that while it may be justified for them to issue significant supplies annually due to their need, the big six's metrics appear to be resilient relative to others.

She remarked that within corporate credit, the team considers the "complete flexibility of the toolkit," which may encompass derivatives and cash bonds.

What is the most efficient way to express our view and trade for the best total return, whether it's the euro bond or the dollar bond, the front end or the long end, or cash versus derivatives?

One of Pier's preferences is legacy non-agency mortgage-backed securities, which she said can be more resilient during a downturn.

"We possess the necessary information to assess the delinquency of the homeowners, including the length of time they've resided in the home, the amount of equity that has been accumulated, their mortgage rate, and their willingness to pay, which provides us with a high level of confidence in this asset class."

Single-A rated corporate debt could be replaced with agency mortgage-backed securities, she suggested.

According to Redfin's analysis of data from the Federal Housing Finance Agency's National Mortgage Database, approximately 60% of homeowners have a mortgage rate below 4%.

"The government implicitly guarantees its liquidity, which is similar to its spread," she stated.

Encouraging women to join her in the business, Pier finds the work exciting.

"Excelling requires dedication and self-belief, anyone can achieve it if they put in the effort," she stated.