Positioning Portfolios for 2024
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: Geraldine Sundstrom, Portfolio Manager, Asset Allocation
Geraldine: Hi everyone, I am Geraldine Sundstrom, portfolio manager and head of asset allocation. I am here with you today to discuss how PIMCO is positioning portfolios across global asset classes as well as other key takeaways from our year-end asset allocation outlook, Prime Time for Bonds.
I’d like to start by providing our overall risk posture in multi-asset portfolios today.
Given our outlook for slower growth, inflation, and the potential for a mild recession, we are emphasizing diversification and caution in our portfolios and prioritizing quality.
This outlook along with market valuations and asset class fundamentals also leads us to strongly favor fixed income in our portfolios.
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. Below the Overall Risk dial are five columns showing the risk dial for each asset class, from left to right, as follows: Column 1: Equities are neutral. Column 2: Rates are overweight. Column 3: Credit is slightly overweight. Column 4: Real assets are neutral. Column 5: Currencies are slightly overweight.
Looking more closely at each asset class,
Full page graphic: Equities are neutral broadly; U.S. equities are overweight; Europe equities are moderately underweight; Japan equities are neutral, and emerging market equities are underweight.
we are neutral on equities as we believe earnings expectations and elevated valuations will return to more reasonable levels over time.
Thematically, we favor high quality U.S. companies versus European equities. We are also underweight emerging market equities given concerns about Chinese growth outlook.
From a sector perspective, we prefer those that may benefit from secular growth and fiscal measures while we’re negative on rate-sensitive industries, such as homebuilders or consumer durables like automakers.
Full page graphic: The risk dial on top shows Credit is slightly overweight broadly; securitized credit is overweight; Investment grade credit is neutral; high yield is slightly underweight and emerging markets credit is neutral.
The bottom risk dial shows Rates are overweight broadly; U.S. and European are overweight, Japan rates is underweight; and emerging markets rates are overweight.
Turning to fixed income, we see very attractive opportunities within the asset class. We are overweight high quality fixed income given high yields, a decelerating inflation, and our view that policy rates are approaching their terminal level.
For bonds in general, the starting yield is a strong predictor of the potential returns and therefore at current levels, high quality fixed income offers potentially higher returns than equities.
We are overweight the United States, European duration as well as those countries that have structurally a more floating rate mortgage market, like Australia, because their economies are more sensitive to higher interest rates.
Within credit, we prefer high quality securitized credit, like agency mortgages, and are underweight the higher risk corporate sectors, especially in high yield.
Full page graphic: The risk dial shows Real Assets are slightly overweight broadly; Inflation-linked bonds are overweight; Commodities, REITs and gold are neutral.
Within real assets, we do prefer Inflation-Linked bonds given attractive real yields.
We see the most value in the American TIPS, which offer an attractive way to hedge inflation given markets are pricing in a fairly modest long-term inflation expectation, and therefore, they are very valuable in terms of portfolio construction.
Lastly, I wanted to touch upon PIMCO’s outlook for foreign exchange going forward.
Full page graphic: The risk dial shows Currencies are slightly overweight broadly; USD is neutral; Euro is underweight; Yen is overweight, and EM is overweight.
We are neutral the U.S. Dollar, we’re balancing more attractive interest rates properties with overvaluation concerns.
We are underweight the Euro given expectations for divergent monetary policy paths as well as a contracting economic activity.
We are overweight the Japanese Yen as a useful diversifier in portfolios and an alternative to the U.S. Dollar given the cheaper relative valuation.
And finally, we are overweight select emerging market currencies that offer attractive valuation profiles as well as high real carry.
Text on screen: For more insights and information, visit pimco.com
Text on screen: PIMCO
Disclosure
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, 11 Baker Street, London W1U 3AH, United Kingdom) is authorised and regulated by the Financial Conduct Authority (FCA) (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, via Turati nn. 25/27 (angolo via Cavalieri n. 4), 20121 Milano, Italy), PIMCO Europe GmbH Irish Branch (Company No. 909462, 57B Harcourt Street Dublin D02 F721, Ireland), PIMCO Europe GmbH UK Branch (Company No. FC037712, 11 Baker Street, London W1U 3AH, UK), PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E, Paseo de la Castellana 43, Oficina 05-111, 28046 Madrid, Spain) and PIMCO Europe GmbH French Branch (Company No. 918745621 R.C.S. Paris, 50–52 Boulevard Haussmann, 75009 Paris, France) 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, Spanish Branch and French Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) (Giovanni Battista Martini, 3 - 00198 Rome) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland (New Wapping Street, North Wall Quay, Dublin 1 D01 F7X3) in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority (FCA) (12 Endeavour Square, London E20 1JN); (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) (Edison, 4, 28006 Madrid) 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 and (5) French Branch: ACPR/Banque de France (4 Place de Budapest, CS 92459, 75436 Paris Cedex 09) in accordance with Art. 35 of Directive 2014/65/EU on markets in financial instruments and under the surveillance of ACPR and AMF. 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, Brandschenkestrasse 41 Zurich 8002, Switzerland). 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 (8 Marina View, #30-01, Asia Square Tower 1, Singapore 018960, 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 (Suite 2201, 22nd Floor, Two International Finance Centre, No. 8 Finance Street, Central, Hong Kong) 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. Office address: Suite 7204, Shanghai Tower, 479 Lujiazui Ring Road, Pudong, 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. To the extent it involves Pacific Investment Management Co LLC (PIMCO LLC) providing financial services to wholesale clients, PIMCO LLC is exempt from the requirement to hold an Australian financial services licence in respect of financial services provided to wholesale clients in Australia. PIMCO LLC is regulated by the Securities and Exchange Commission under US laws, which differ from Australian laws. | 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, The Investment Trusts Association, Japan and Type II Financial Instruments Firms Association. 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 an independently operated and managed company. The reference number of business license of the company approved by the competent authority is (112) Jin Guan Tou Gu Xin Zi No. 015 . The registered address of the company is 40F., No.68, Sec. 5, Zhongxiao East Rd., Xinyi District, Taipei City 110, Taiwan (R.O.C.), and the telephone number is +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. | 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 LLC in the United States and throughout the world. ©2023, PIMCO.
CMR2023-1114-3227537