Economic and Market Commentary

How Can Transformation Lead to Opportunity in 2022?

Hear PIMCO’s asset allocation takeaways on where we see the most compelling opportunities in the age of transformation.

More from this Asset Allocation Outlook

More from this section

Read Transcript

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: Jason Odom, Product Strategist, Asset Allocation

Jason Odom: Hi. I'm Jason Odom, and I'm joined today by portfolio managers Erin Browne, Geraldine Sundstrom, and Emmanuel Sharef. Thank you for joining us today. PIMCO recently published our asset allocation views for 2022, titled, “Opportunity Amid Transformation.” Erin, would you walk us through some of the key takeaways?”

Text on screen: Erin Browne, Portfolio Manager, Asset Allocation

Erin Browne: As we emerge from the pandemic, we think that the next decade will be fundamentally different from the one that we've experienced over the prior decade. PIMCO is referring to this period as the age of transformation. The key question for us as investors is to assess what changes are temporary, and what changes are going to be more permanent in nature. Two areas that we're watching more closely are labor markets and global supply chains. With respect to labor markets,

Text on screen: Labor markets: We expect temporary effects of pandemic will fade throughout 2022

Images on screen: Labor and manufacturing companies

we expect that the temporary effects of the pandemic will fade as we navigate through 2022, such as government assistance and childcare constraints. However, some of the structural shifts, like a shift to working from home, shift to earlier retirement, as well as increased labor bargaining power, will likely remain more permanent in nature.

Similarly, the disruptions that we've are experienced in the post- pandemic

Text on screen: Labor markets: Supply chains: We expect bottlenecks to ease in 2022

Images on screen: Cargo ships and busy ports

period in supply chains will also ebb as we move through 2022. That said, as we exit this pandemic period, the future is going to require a much more physical buildout of infrastructure investment,

Images on screen: Electric car, solar panels and windmills

which will keep demand for technology and green infrastructure imports much higher than what we've experienced in the past. The magnitude and the permanence of these changes in the labor market and global supply chains will have important implications for inflation over the next 12 months, and this is going to be a key swing factor for markets, in our view. 

Jason Odom: Thanks, Erin. You bring up an interesting point about inflation being a key swing factor. Emmanuel, what is PIMCO's base case expectation for inflation, and how does that impact positioning in our multi-asset portfolios?

Text on screen: Emmanuel S. Sharef, Portfolio Manager, Asset Allocation and Residential Real Estate

Emmanuel Sharef: Our base case is that inflation should peak in the first quarter of 2022, and then gradually decelerate throughout the year, ending the year around 2 percent for core PCE. But even in that benign scenario, it means we still have several months of relatively high and uncomfortable inflation prints ahead of us, and those prints will remain high while these logistical bottlenecks and wage pressures that we're currently facing gradually ease. In the meantime,

Images on screen: The Federal Reserve

the biggest risk in our view is a policy mistake, if central bankers feel that they need to early and aggressively hike rates into an environment where the economy's already naturally slowing, that could significantly handcuff growth. So therefore inflation and its components are something that we're watching and tracking very closely, given the linkage to interest rates, to growth expectations, and then ultimately also to asset prices and portfolio correlations.

Jason Odom: Geraldine, turning to you, in an environment where valuations are full, and higher inflation remains a threat, where are the pockets of opportunity for investors to preserve and grow their capital?

Text on screen: Geraldine Sundstrom, Portfolio Manager, Asset Allocation

Geraldine Sundstrom: Clearly, there are some risks on the horizon, but with the amount of changes that are occurring currently in the global economy in this age of transformation, there are some compelling investment opportunities for active investors.

Text on screen: TITLE – Potential opportunities for active investors:, BULLETS – Semiconductors, Renewable energy, Automation space, Infrastructure

For instance, the green and digital transformation is leading to an explosion in demand for semiconductor, a trend that we expect to continue for years to come. Other things would be application, like renewable energy or the automation space, which are sectors that are likely to see strong tailwinds in the years to come. Last but not least, this transformation will require important infrastructure spending, and a lot of goods are going to need to be carried around to do those investments. As such, we have seen recently a large spike in maritime transport and shipping costs. However, we think that, for the next couple of years, it is likely that shipping will remain supported.

The bottom line is that at PIMCO, we have spent a long time to identify those new secular trends and try to position our portfolio to come up with new ideas that will generate those differentiated returns

Jason Odom: Thanks, Geraldine. Erin, in our mid-year update, you described the economy as being mid-cycle. Is that still the view? And if so, has anything notable changed?

Erin Browne: Our economic models continue to suggest that the economy is mid-cycle, whereby growth will remain positive, but moderate from the levels that we've seen over the last year. The main difference from earlier in the year is that inflation has proven to be

Images on screen: PIMCO trade floor

much more stubborn than previously expected. Overall, we anticipate a bumpier road ahead, characterized by higher market volatility, greater dispersion in performance across both risk asset classes, sectors, as well as regions.

However, as active investors, these tend to be periods of opportunity for our portfolios, ripe for alpha generation for those that can be patient and identify new themes as they emerge.

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

Text on screen: PIMCO 50 1971-2021

Recorded 6 December 2021

Personal Consumption expenditures (PCE)

IMPORTANT NOTICE

Disclosure


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.

A word about risk: 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 low interest rate environments increase this risk. 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.

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. There is no guarantee that results will be achieved.

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.

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.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only 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.

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 is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517) is authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963), PIMCO Europe GmbH Irish Branch  (Company No. 909462), PIMCO Europe GmbH UK Branch (Company No. 2604517) and PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 15 of the German Securities Institutions Act (WpIG).  The Italian Branch, Irish Branch, UK Branch and Spanish Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority; and (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and  203  to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication.| PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2). The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Investment Management (Shanghai) Limited Unit 3638-39, Phase II Shanghai IFC, 8 Century Avenue, Pilot Free Trade Zone, Shanghai, 200120, China (Unified social credit code: 91310115MA1K41MU72) is registered with Asset Management Association of China as Private Fund Manager (Registration No. P1071502, Type: Other) | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. | PIMCO Japan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association and The Investment Trusts Association, Japan. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is managed and operated independently. The reference number of business license of the company approved by the competent authority is (110) Jin Guan Tou Gu Xin Zi No. 020. 40F., No.68, Sec. 5, Zhongxiao E. Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.). Tel: +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO Latin America Av. Brigadeiro Faria Lima 3477, Torre A, 5° andar São Paulo, Brazil 04538-133. | No part of this publication 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.

CMR2021-1209-1953185

Filters: Reset All

Filters

Close Filters Dropdown
  • Tags

    Reset

    Close
  • Category

    Reset

    Bond by Bond
    Careers
    Economic and Market Commentary
    Investment Strategies
    PIMCO Foundation
    PIMCO Education
    View from the Investment Committee
    View From the Trade Floor
    Viewpoints
    Education
    Close
  • Order By

    Reset

    Alphabetical
    Most Recent
    Close
() filters applied

Multimedia Finder

Filter By:
  • Bond by Bond
  • Careers
  • Economic and Market Commentary
  • Investment Strategies
  • PIMCO Education
  • View from the Investment Committee
  • View From the Trade Floor
  • Viewpoints
  • Understanding Investing
  • A
  • B
  • C
  • D
  • E
  • F
  • G
  • H
  • I
  • K
  • L
  • M
  • N
  • O
  • P
  • Q
  • R
  • S
  • T
  • W
  • Y
Clear
Tina Adatia
Global and Core Fixed Income Product Strategist
Joshua Anderson
Portfolio Manager, Income and Asset-Backed Securities
Del Anderson
Credit Analyst
Robert Arnott
Founder and Chairman, Research Affiliates
Andrew Balls
CIO Global Fixed Income
Rachel Betton
Portfolio Manager, Municipal Bonds
Justin Blesy
Asset Allocation Strategist
Meredith Block
ESG Research Analyst
David L. Braun
Head of US Financial Institutions Portfolio Management
Jelle Brons
Portfolio Manager, Global Investment Grade Credit
Nathaniel Brown
Director of the PIMCO Foundation
Erin Browne
Portfolio Manager, Multi-Asset Strategies
Esteban Burbano
Fixed Income Strategist
Grover Burthey
Portfolio Manager, ESG
Libby Cantrill
Public Policy
John R. Cavalieri
Stephen Chang
Portfolio Manager, Asia
Devin Chen
Portfolio Manager, Commercial Real Estate
Josh Davis
Global Head of Client Analytics
Pramol Dhawan
Head of Emerging Markets Portfolio Management
Alex Etzkowitz
Municipal Fixed Income Strategist
Joachim Fels
Global Economic Advisor
David Fisher
Co-Head of Strategic Accounts, U.S. Global Wealth Management
Nick Granger
Portfolio Manager, Quantitative Analytics
Adam Gubner
Portfolio Manager, Distressed Debt
Bill Gurtin
Gregory Hall
Head of U.S. Global Wealth Management
David Hammer
Head of Municipal Bond Portfolio Management
Mary Hoppe
Ray Huang
Portfolio Manager, Real Estate
Daniel H. Hyman
Head of Agency MBS Portfolio Management
Daniel J. Ivascyn
Group Chief Investment Officer
Mark R. Kiesel
CIO Global Credit
Erica Kinsella
Product Strategist, ESG Strategies
Kaboo Leung
Christine Long
Head of Retirement Marketing
Raji O. Manasseh
Equity Strategist
Jason Mandinach
Head of Alternative Credit and Private Strategies
Chantal Manseau
Rene Martel
Head of Retirement
Samuel Mary
ESG Research Analyst
Scott A. Mather
CIO U.S. Core and Sustainable Investments
Sean McCarthy
Head of Municipal Credit Research
Kyle McCarthy
Alternative Credit Strategist
Mohit Mittal
Portfolio Manager, Multi-Sector
James Moore
Alfred T. Murata
Portfolio Manager, Mortgage Credit
John Murray
Portfolio Manager, Commercial Real Estate
John Nersesian
Head of Advisor Education
Roger Nieves
Senior Advisor
Jason Odom
Strategist, Asset Allocation
Rick Pagnani
Head of Insurance-Linked Securities
Sonali Pier
Portfolio Manager, Multi-Sector Credit
Christina Pihos
Defined Contribution Marketing
Steven Pogorelec
Global Wealth Management
Chitrang K. Purani
William Quinones
Product Strategist
Lupin Rahman
Head of EM Sovereign Credit
Libby Rodney
Steve A. Rodosky
Portfolio Manager, Real Return and Long Duration
Emmanuel Roman
Chief Executive Officer
Steve Sapra
Client Solutions & Analytics
Jerome M. Schneider
Head of Short-Term Portfolio Management
Marc P. Seidner
CIO Non-traditional Strategies
Emmanuel S. Sharef
Portfolio Manager, Asset Allocation and Multi Real Asset
Greg E. Sharenow
Portfolio Manager, Commodities and Real Assets
Anmol Sinha
Candice Stack
Head of Client Management, Americas
Kimberley Stafford
Global Head of Product Strategy
Cathy Stahl
Global Head of Marketing
Tim Steffen
Senior Consultant, Advisor Education
Christian Stracke
Global Head of Credit Research
Geraldine Sundstrom
Portfolio Manager, Asset Allocation, EMEA
Richard Thaler
Distinguished Service Professor of Economics and Behavioral Science at the University of Chicago's Booth School of Business
Mark Thomas
Account Manager, Global Wealth Management
Jessica K. Tom
Senior Credit Analyst
Eve Tournier
Head of European Credit Portfolio Management
Francois Trausch
CEO and CIO, Allianz Real Estate
D. Alan Trice
Jerry Tsai
Quantitative Research Analyst
Megan Walters
Global Head of Research, Allianz Real Estate
Qi Wang
Portfolio Manager, Global Macro Hedge Fund Strategies
Jamie Weinstein
Portfolio Manager, Head of Corporate Special Situations
Tiffany Wilding
North American Economist
Kevin Winters
Alternatives Strategist
Andrew T. Wittkop
Portfolio Manager, Treasuries, Agencies, Rates
Nelson Yuan
Chris Brightman
Chief Executive Officer and Chief Investment Officer, Research Affiliates
PIMCO
Ben S. Bernanke
Chair, Global Advisory Board
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
Seizing Opportunities as Valuations Improve