PIMCO shows the way for fixed-income managers in the world of zero-bound interest rates.

In a world of persistent zero-bound rates, cash investors need to look both beyond the now and into underlying risk factors that are having an impact on their investments.

That was one of the themes discussed at last week’s meeting of the NeuGroup’s Treasury Investment Managers’ Peer Group (TIMPG), where meeting sponsor PIMCO contributed to several topics on the members’ agenda, including the rate outlook and the likelihood of continued zero-bound rates.

PIMCO’s Bill Gross, who spoke to the group, detailed how his firm thinks treasurers should invest cash for additional return without exceeding risk tolerances. Here are some key takeaways:

Zero-bound rate world will continue. “Bond managers must adapt to a new world of near zero-bound interest rates and the likelihood of lower total returns,” said Mr. Gross as he kicked off the TIMPG meeting. His outlook is for the Fed to be on hold for the foreseeable future and into 2016. To support this outlook he mentioned Fed nominee Janet Yellen’s stance as a “super dove” determined to maintain low rates.

Also adding to this backdrop is the uncertainty as it relates to the US Government, “uncertainty can’t be a good thing for corporations. Investment is flat-lining.” Mr. Gross noted that an economy cannot grow if corporations are not investing.

“Carry” out of the present. With zero-bound rates and upside uncertainty in the immediate future, reducing maturity in the investment portfolio is a strategy Mr. Gross felt could be counterproductive. Instead Mr. Gross recommended investors focus on “carry,” which he describes as maturity extension, credit spreads, volatility and currency differences, to help protect downside risks.

Dump traditional asset allocation methodologies for risk factor allocation. Members were challenged to look at asset allocation in a new way and substitute risk factors as the primary building blocks for portfolio optimization rather than asset classes.

PIMCO’s Sebastian Page presented the benefits of using risk factors instead of asset classes to guide investment allocations. Essentially, risk factor-based allocation means looking at the underlying risk profile of the investment security in terms of credit or interest-rate risk, for example, and diversifying based on such risk criteria versus by type of security. PIMCO’s model searches for uncorrelated risk factors and builds a portfolio based on this information. Using this approach, PIMCO showed how its risk factor model will allow investors to de-risk their cash portfolios without sacrificing yield.

The Treasury Investment Managers’ Peer Group (TIMPG) is a membership group for practitioners with principal responsibility for managing the investment of excess cash at corporates with sizeable cash portfolios. Members meet to discuss topics on their agenda, share experiences and discuss solutions to common challenges. The TIMPG is one of 15+ NeuGroups representing more than 300 members at 180+ companies.