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, Senior Vice President, Product Strategist
Odom: My name is Jason Odom, and I'm joined today by my colleagues Erin Browne and Geraldine Sundstrom to discuss PIMCO's asset allocation outlook.
Erin, starting with you, the global economy has moved from a late-cycle to an early-cycle environment in less than a year. How are you positioning portfolios today?
Text on screen: Erin Browne, Portfolio Manager, Asset Allocation
Browne: Looking out over the next year we expect that corporate profit growth will accelerate and risk asset valuations will remain well-supported, given the collapse that we've seen in real rates over the past year.
Full page graphic shows PIMCO’s asset allocation risk dials across asset classes. At the top of the page, the Overall Risk dial is set to slightly overweight. Then from left to right the dials are as follows: Column 1: Equities are moderately overweight broadly; US equities are slightly overweight; Europe equities are neutral; and Japan and emerging market equities are slightly overweight. Column 2: Rates are slightly overweight broadly; US rates are slightly overweight; Europe rates are slightly underweight; and Japan is neutral and emerging market equities are slightly overweight. Column 3: Credit is very slightly overweight broadly; securitized credit is slightly overweight; Investment grade credit is slightly overweight; high yield is neutral and emerging market equities are slightly overweight. Column 4: real assets is very slightly overweight broadly; inflation linked bonds is slightly overweight; Commodities and REITs are neutral; gold is slightly overweight. Column 5: currencies very slightly overweight broadly; USD is mildly underweight while the euro, yen and EM are slightly underweight.
As a result, as we enter 2021 we're overweight risk assets and we're now looking to take more cyclical risk in our portfolio. To take advantage of the accelerating global growth that we expect this year
Odom: Geraldine, turning to you. Are there any other structural shifts that have occurred, and if so, what are the long-term implications for investors?
Text on screen: Geraldine Sundstrom, Portfolio Manager, Asset Allocation
Sundstrom: At PIMCO we've been discussing the idea of secular disruptors for years now. The pandemic, as you said, has been an accelerator of these trends in areas like technology or geopolitical tensions between the U.S. and China.
As we look forward to the recovery phase now, climate and sustainability are at the center of many recovery policies.
Images on screen: sustainable energy, electric vehicle, automation
Importantly, many of these secular structural shifts are still in the early stage and could represent good investment opportunities, like in renewable energy, electric vehicles, or automation.
Odom: Erin, can you elaborate on some of the key equity themes being expressed in portfolios today?
Browne: Sure. The recovering activity and the ongoing improvement that we expect in corporate profits should be supportive for a rebound in cyclically exposed assets that have meaningfully lagged the market leaders, like big tech, since the market bottom in March.
Text on screen: Equity themes for 2021: BULLETED LIST – Industrial materials, Semiconductors, Consumer durables, Housing-related assets, Select emerging markets, Cyclically oriented regions
The global manufacturing recovery should benefit industries like industrial materials as well as semiconductors.
And in addition, the focused fiscal measures coupled with an improvement in the labor market, should benefit consumer durables as well as housing recovery themes.
On a regional basis we believe that select emerging markets, and cyclically oriented regions like Japan, should benefit.
Odom: Geraldine, what if the recovery hits a speed bump in 2021? How are you thinking about portfolio diversification and, protecting against that downside scenario?
Sundstrom: is indeed a time to position portfolio for a fresh, brand new economic cycle, but significant near-term risks remain. So it is important to keep good diversifiers in portfolio.
Text on screen: Portfolio diversification and potential downside protection: BULLETED LIST – Select government bonds (ex. U.S. Treasuries), High-quality emerging market bonds, Real assets, High quality currencies
First, we believe that safe government duration will remain a good diversifier for portfolio, and certainly in case of an adverse economic environment, U.S. treasury would have room to rally. However, yield levels are relatively low, and we need to broaden the scope of this duration exposure towards some higher-quality emerging market like bonds of the Chinese government or those of Peru.
We also use real assets like gold or inflation-protected treasuries, given the fact that they could not only be a hedge in case of an economic weakening, but could also act as potential hedge in case of an inflation surprise. Last, but not least, we also rely on some risk of high-quality currencies like the Japanese yen.
The bottom line of all of this is that one has to diversify their diversifiers.
Text on screen: For more insights and information visit PIMCO.com
Text on screen: PIMCO
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.
The continued long term impact of COVID-19 on credit markets and global economic activity remains uncertain as events such as development of treatments, government actions, and other economic factors evolve. The views expressed are as of the date recorded, and may not reflect recent market developments.
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. 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. 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. Treasury Inflation-Protected Securities (TIPS) are ILBs issued by the U.S. government. 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. 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. Commodities contain heightened risk, including market, political, regulatory and natural conditions, and may not be appropriate for all investors. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Diversification does not ensure against loss.
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 long-term, especially during periods of downturn in the market.
Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fees, and/or other costs. In addition, references to future results should not be construed as an estimate or promise of results that a client portfolio may achieve.
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.
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 individual 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 Spanish Branch (N.I.F. W2765338E) and PIMCO Europe GmbH Irish Branch (Company No. 909462) 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 32 of the German Banking Act (KWG). The Italian Branch, Irish Branch and Spanish Branch are additionally supervised by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act and 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 individual 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 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 (109) Jin Guan Tou Gu Xin Zi No. 027. 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.