Current Views

Overall Dial
As of 2 February 2017

Overall Risk Position

We present our views on asset allocation, which we hope help investors see through market volatility to potential opportunities ahead. We remain modestly overweight on overall risk positioning. In light of stretched valuations and complacency across many assets, we are maintaining ample dry powder and remain focused on portfolio liquidity as well as tail risk hedging strategies.

Equities-Rates-Overall-Currencies
As of 2 February 2017

Equities

While we are more constructive on equities relative to other risk assets, in light of the recent rally we are maintaining a neutral view overall and an underweight to U.S. equities. Yet potential changes to U.S. tax policy and regulation may provide further support to domestically oriented U.S. corporations. We are moderately bullish on European equities, with growth in the region above trend and an accommodative ECB. We currently have a small positive allocation to EM as a long-term value play.

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Rates Dial
As of 2 February 2017

Rates

We remain defensive on interest rate exposure. In the U.S., we prefer TIPS. Beyond the U.S., we find UK Gilts and Japanese government bonds rich, and we believe valuations of bonds by "peripheral" countries in Europe are not sustainable without ECB support.

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Credit Dial
As of 2 February 2017

Credit

This late in the cycle investors should appreciate the limited spread tightening potential of corporate bonds as well as the downside potential for defaults or spread widening. Our overweight to credit is focused on non-agency mortgage-backed securities, which will likely continue to benefit from an ongoing recovery in the U.S. housing market and remain well-insulated from many global risks.

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Real Assets Dial
As of 2 February 2017

Real Assets

We maintain an overweight to real assets, with a focus on U.S. TIPS. Inflation expectations have risen recently, yet we believe there is still value in TIPS as the market is underpricing inflation risk. Inflation is on course to reach and possibly exceed the Fed's 2% target over the coming months. (The Fed watches the PCE measure of inflation, not CPI. The latter recently surpassed 2%.)

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Equities-Rates-Overall-Currencies
As of 2 February 2017

Currencies

We continue to favor the U.S. dollar against a basket of Asian currencies - a region that has benefited inordinately from global trade. We also have a modest underweight in the euro, anticipating continued dovish monetary policy from the ECB. We are holding small tactical positions in some of the higher-carry "commodity currencies" given the excessive cheapening seen post elections.

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Disclosures

Past performance is not a guarantee or a reliable indicator of future results. 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. Charts are provided for illustrative purposes and are not indicative of the past or future performance of any PIMCO product.

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. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Sovereign securities are generally backed by the issuing government. Obligations of U.S. government agencies and authorities are supported by varying degrees, but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such securities are not guaranteed and will fluctuate in value. Inflation-linked bonds (ILBs) issued by a government are fixed income securities whose principal value is periodically adjusted according to the rate of inflation; ILBs decline in value when real interest rates rise. Treasury Inflation-Protected Securities (TIPS) are ILBs issued by the U.S. government. Commodities contain heightened risk, including market, political, regulatory and natural conditions, and may not be suitable for all investors. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government-agency or private guarantor, there is no assurance that the guarantor will meet its obligations. High yield, lower-rated securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. There is no assurance that the liquidation of any collateral from a secured bank loan would satisfy the borrower's obligation, or that such collateral could be liquidated. 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 long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.

This material contains the opinions of the author but not necessarily those of PIMCO and such opinions are subject to change without notice. This material has been distributed for informational purposes only. Forecasts, estimates and certain information contained herein are based upon proprietary research 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. ©2017, PIMCO.

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