Investment Strategies

Positioning PIMCO Models for 2022

Get a brief overview of how we’re positioning PIMCO’s Model Portfolios for the new year with Emmanuel Sharef, portfolio manager, asset allocation.

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

Emmanuel Sharef: PIMCO’s recently published the 2022 asset allocation outlook, which contains our key views and portfolio positioning themes, that’s also the background that drives how PIMCO model portfolios are positioned. Just as a reminder, PIMCO offers model portfolios of mutual funds and ETFs to meet a variety of objectives for clients, and clients can also use them as a guide for how we would size and allocate to meet those objectives.

Text on screen: TITLE – Fixed income models:, BULLETS – Capital preservation, SUB-BULLETS - Higher return potential than traditional cash investments, BULLETS – Enhanced core, SUB-BULLETS: Higher yield potential with less duration, BULLETS – Income focus, SUB-BULLETS – Seek attractive yield in a diversified manner

For example within the fixed income models, we have, first, capital preservation models that are designed to offer a higher return potential than traditional cash investments with only a modest increase in risk; second, we have enhanced core models that look to improve upon passive core by offering higher yields without as much duration, while still acting as diversifiers for clients who hold them against an equity position. And third, we offer income focus models that try to seek attractive yield in a diversified manner.

So let me talk about the market environment for a moment. 2021 has of course been a challenging year for fixed income.

Text on screen: Rising inflation led to bouts of rising yields

Images on screen: New York Stock Exchange

Inflation has been coming in well above market expectations, and this has led to bouts of rising yields; we saw the 10Yr climb above 1.7 in Q1, then that was punctuated by delta variant worries over the summer,

Images on screen: The Federal Reserve

and more recently markets have been pricing in more than two hikes in 2022 at the front-end. Meanwhile credit spreads started the year quite tight and haven't been much of a tailwind to broader fixed income, and also EM credit has been very challenged.

Looking forward, it's likely that we’ll see continued volatility in fixed income markets, as we're entering the beginning of a hiking cycle, a period of slower growth in the economy, and probably a period with more noise in the inflation numbers.

Our base case for 2022 on inflation is that inflation likely peaks in the first quarter, and then decelerates back towards 2% by year-end.

Text on screen: TITLE – PIMCO’s 2022 base case:, LIST - Supply chain bottleneck easing, GDP should remain strong, Potential Fed hike, Rates should continue to rise, Credit markets should be well-supported

Likely there'll be some easing in the supply chain bottlenecks and GDP will probably remain quite strong around 4.5%. So we're still in an economic expansion, and we should expect for there to be room for the Fed to hike, possibly even at the end of 2022. That also means that rates should continue to rise from here, although the terminal rate could be lower than in previous cycles. And as long as the economy is recovering, corporate earnings and credit markets should be well-supported.

There are risks, of course, in both directions: on the one hand, persistent inflation could become entrenched, or conversely there could be a hawkish policy mistake by central bankers overreacting to transitory factors; we could also see slowdowns from continued delays to the reopening; and the ever-present geopolitical risk includes risks arising in China.

Given this outlook we want to be cautious on duration overall, but as yields have risen, we’re mindful that it's back to being a decent diversifier in multi-asset portfolios. It also makes sense to have some exposure to funds that can move tactically and adjust curve and duration exposure quickly as the data change. Credit is for the most part fully valued, but there are a few select opportunities in Covid-affected names, both in IG and HY, and of course in securitized credit, including non-agency mortgages that benefit from strong consumer balance sheets and rising house prices. EM and especially EM FX is an area that hasn’t been able to recover as swiftly and screens cheap, but there are also structural headwinds so we want to keep our exposure controlled there.

Text on screen: TITLE – Model positioning given our asset allocation outlook:, LIST – Focus on active opportunities, Tactical positioning in duration and credit, Bottom up security and sector selection

Overall we think this is a time to focus on active opportunities, tactical positioning in duration and credit, and bottoms up security and sector selection and that’s what we’re trying to do in our Models portfolio as well.

Text on screen: For more insights and information, visit

Text on screen: PIMCO 50 1971-2021

Recorded 30 November 2021



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.


Different fund types (e.g. ETFs, open-ended investment companies) and fund share classes are subject to different fees and expenses (which may affect performance). They may also have different minimum investment requirements and be entitled to different services.

The PIMCO Models described in this material are available exclusively through investment professionals.

PIMCO Models are created based on what Pacific Investment Management Company LLC (together with its affiliates, “PIMCO”) believes to be generally accepted investment theory. In adjusting PIMCO models PIMCO considers, among other things, the results of quantitative modeling. Such quantitative modeling is designed to optimize each Model’s allocation and align with the Model’s investment objective, and takes into account various factors or “inputs”, determined by PIMCO, including third party data, to generate a suggested allocation for the PIMCO Models. PIMCO’s investment team then reviews the quantitative output and adjusts the output to reflect variables, which may include, among other things, the anticipated trade size, target total expense ratio for the Model, and qualitative investment insights. PIMCO Model allocations are ultimately subject to the discretion of PIMCO’s investment team. PIMCO Models are for illustrative purposes only and may not be appropriate for all investors. PIMCO Models are not based on any particularized financial situation, or need, and are not intended to be, and should not be construed as, a forecast, research, investment advice or a recommendation for any specific PIMCO or other strategy, product or service. Individuals should consult with their own financial advisors to determine the most appropriate allocations for their financial situation, including their investment objectives, time frame, risk tolerance, savings and other investments. Volatility is historical and is likely to change over time. PIMCO has not undertaken, and will not undertake, any analysis to determine any specific models’ suitability for specific investors.

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