Portfolio Implications for Investing in the Recovery
Text on screen: PIMCO
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Text on screen: Andrew Balls, CIO Global Fixed Income
Andrew Balls: We think this is a very good environment for active investors. Bounded Optimism is the title of the piece, not optimism across the board. And we certainly don't want blind exposure to beta. We want to be looking to implement the best ideas in this environment.
And then moving to the specific portfolio implications,
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Image: Chart showing five different market implications with Rates highlighted. BULLET POINTS – Fairly neutral overall duration given both upside and downside risks; Expect to have curve-steepening positions.
on duration, we're broadly neutral on duration in our core portfolios. We've moved a little bit higher in the last weeks, but we see both upside and downside risk to duration, push and pull between lockdowns and vaccines you might say. Curves, in terms of curve positioning, we have a bias for curve steepening. Over the next year, over the next 18 months, we think central banks will continue to anchor the frontend of the curve, but further out the curve, you could see more pricing in of reflation at the longer end of the curve. So a curve steepening bias we think makes sense.
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Image: Chart showing five different market implications with Corporate Credit highlighted. BULLET POINTS – Cautious on generic credit beta; Private credit can offer an attractive vehicle for long-term positions.
Credit looks reasonable. We are going to find good opportunities there. But we would stress firstly the active approach, the best ideas of our credit analysts, our credit team. We don't want to expose you to just generic credit. We want to have the best ideas from our credit experts. And then private vehicles, private credit vehicles, a different approach, but the opportunity to benefit from liquidity premia, complexity in terms of some of the structures there, more appropriate to private credit vehicles.
Emerging markets look reasonable.
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Image: Chart showing five different market implications with Emerging Markets highlighted. BULLET POINTS – Overweight hard-currency denominated emerging market sovereign credit exposures; Select EM local positioning.
We should find good opportunities in EM external hard currency, but also select opportunities in terms of local exposures.
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Image: Chart showing five different market implications with Securitized highlighted. BULLET POINTS – U.S. Agency mortgage-backed securities offer attractive carry; U.S. mortgage credit and broader global asset-backed market offer seniority and favorable profiles.
In broad terms, housing market related assets look pretty attractive to us still. So US agency mortgages, non-agency mortgages in the US. In the UK, UK RMBS, some other global alternatives continue to offer we think pretty good risk/reward. Asset backed securities, seniority in the capital structure.
And then finally, in the global portfolios where I'm closely involved and more broadly with the more globally orientated portfolios,
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Image: Chart showing five different market implications with Currencies highlighted. BULLET POINT – Modern U.S. dollar underweight versus the basket of G-10 currencies and select EM FX exposures.
where FX positioning is appropriate, we've had an underweight to the US dollar. That's worked well in the past couple of months. We think there's further to go in terms of being underweight the dollar versus cyclical developed market countries. Often the commodity producing countries, select emerging market currencies as well. In the baseline of cyclical global recovery, we think there is further for the US dollar to underperform which is what we would expect in that kind of global recovery cycle.
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