Economic and Market Commentary

Confronting Lower Returns and Higher Volatility

Expensive valuations and elevated volatility are likely to create challenges, but an active, flexible focus on relative value and alpha generation may help contribute to overall returns over the next three to five years.

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Text on screen: PIMCO

Text on screen: PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized

Text on screen: Candice Stack, Head of Client Management, Americas

Candice: What's our kind of broader view in terms of what clients and investors can think from a forward-looking return perspective?

Text on screen: Daniel J. Ivascyn, Group Chief Investment Officer

Daniel Ivascyn: The challenge going forward is going to be that valuations across nearly all areas of the financial markets are relatively expensive. We don't necessarily think we're bubble territory, but I think it's important for investors to acknowledge that valuations are stretched under any type of historical metric.

And for that reason, for investors at this point of the recovery period with so much economy fragility, people just have to being their return expectations down a bit lower than they've grown accustomed to.

Text on screen: The reality of a low-return environment with higher volatility ahead

And then unfortunately of course, on the other side of the ledger, we expect volatility to be elevated. So low returns, higher volatility is the exact opposite of what we look for as investors. And it's going to create a much more challenging environment over the next 3 to 5 years than we've become accustomed to.

Candice Stack: Any final words in terms of investment implications, or considerations, as so many of our clients look to navigate these disruptions?

Dan Ivascyn: Going back to my initial points, when comparing the level of yields, the level of spreads, the level of equity markets from a valuation perspective today versus almost 12 years ago during the last crisis, they're high. And in some sense, we may have reached something resembling the destination in terms of beta returns. Which means on a go-forward basis, having flexibility in terms of a mandate, focusing on good old-fashioned relative value, alpha creation, over the next 3 to 5 years, is likely to be a much more significant contributor to overall returns than it's been over the more recent history.

So again, patient, flexible capital, taking a very active approach to industry security and sector selection, we do think will pay dividends over the next 3 to 5 years. And of course, we remain very, very diligent and focused on of course delivering in terms of investment returns.

Text on screen: For more insights and information, visit pimco.com

Text on screen: PIMCO

Disclosure


IMPORTANT NOTICE

Please note that the following contains the opinions of the manager as of the date noted, and may not have been updated to reflect real time market developments. All opinions are subject to change without notice.

All investments contain risk and may lose value.
Alpha is a measure of performance on a risk-adjusted basis calculated by comparing the volatility (price risk) of a portfolio vs. its risk-adjusted performance to a benchmark index; the excess return relative to the benchmark is alpha

Beta is a measure of price sensitivity to market movements. Market beta is 1.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only. 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. ©2021, PIMCO

Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660, 800-387-4626.

CMR2021-0104-1465567

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