Daniel Ivascyn says it’s time to take a more “cautious and defensive” strategy with the $113.7 billion Pimco Income Fund (PONAX).

The chief investment officer of Pimco said he’s taking the tack as central banks move away from accommodating policies that have buttressed markets since the 2008 financial crisis.

More than half of Dan Ivascyn’s Income Fund was in low-yielding, low-risk government-related securities.
Daniel Ivascyn's Pimco Income has lost 0.1% this year through Aug. 6. Bloomberg News

“For both equity and fixed income investors, we think this means lower returns and, unfortunately, higher volatility,” Ivascyn and Alfred Murata, co-managers of the largest actively managed bond fund, said in a post Tuesday on the firm’s website. “This combination creates a much more challenging investment environment.”

The upshot: the fund will increase liquidity and diversification, he said. The plan includes being cautious about U.S. credit while looking for smaller opportunities in the global fixed-income universe.

Fixed-income managers have struggled to generate positive returns this year as interest rates rise, which drives down bond prices.

Pimco Income has lost 0.1% this year through Aug. 6. It has returned an average of 5.9% annually for the last five years, outperforming 99% of Bloomberg peers.

The fund will continue to invest in non-agency mortgage-backed securities, which have increased in supply over the last year, fueled by the introduction of about $300 billion backed by home loans that had previously been in default but are now being paid, according to Murata.

Bloomberg News