Dan Ivascyn: Beyond the Base Case in 2026

Stay tuned after the conclusion of the podcast for additional important information.

GREG: Hey, everybody! Happy New Year, and welcome to another episode of Accrued Interest PIMCO's podcast dedicated to serving financial advisors and their clients. Today, I'm really excited. We've got our group CIO Dan Ivascyn here on the pod with us. We're gonna make this an annual tradition. We're gonna kick off the new year with Dan, get his thoughts on the investment landscape for the year ahead. Dan, thanks for taking the time to  join us!

DAN IVASCYN: Thanks Greg! It's great to be back!

GREG: I know it's a busy, you know, kickoff to the year. I hope you had a nice holiday. I hope you got some rest. Hope you're raring to go.

DAN IVASCYN: Yeah, we tried to ski, not much snow, but it was a good time  to relax a little bit, get outside and digest, you know, the financial market performance last year and get ready for the new year.

GREG: That's good. Yeah, I heard about the snow conditions in Utah, right? That's the destination.

DAN IVASCYN: That's right. It's not ideal, but, you know, still good family fun.

GREG: Good. Well, let's talk about the year ahead. And I wanna start maybe  just from a top down perspective. Where do you see the macro landscape as we look forward into 2026?

DAN IVASCYN: Yeah, we're, you know, we're continuing to be pretty optimistic about the growth picture. And in fact, we see growth accelerating in the first half of the year here in the United States. We've gotten some pretty good recent data on the productivity front, on the growth front in the fourth quarter. And, you know, we think that's likely to continue on a global basis. More uncertainty across Europe, China still struggling, but, you know, generally speaking at least thinking about the base case, you know, we do see positive growth on the inflation side.

Inflation will likely, you know, trend a bit lower towards the end of this year, still plenty of uncertainty on the inflation front. And I think the only challenge there in terms of the base case is that this type of optimism that we have is reflected in market pricing, whether you're looking at equities or, you know, credit the riskier areas of the market.

So, in some sense I'm describing the market expectations here. So, you know, on the margin, you know, we're a touch more cautious than what's implied in many valuations. But we probably are in for, you know, again, a positive growth year in one where we surprised the upside at least during the first half of the year.

GREG: Yeah, I was, I think the last time we spoke, we talked about a little bit of anticipating a little bit of a dip in the third, fourth quarter of last year, and then a re-acceleration in the front part of 2026. Can you talk about what's driving that and what makes us, whether you think it's sustainable throughout 2026, or do we see maybe another inflection point somehow midyear?

DAN IVASCYN: Sure, yeah. There are two areas that we think are gonna drive you know, better growth in the first half. One, we in the market have  talked a lot about just this infrastructure investment, most of it tech related, either directly or energy related to drive, you know, some of the tech development that's continuing to have a quite positive impact on growth.

Then the delayed impact of the Trump tax cuts or the Trump bill from last year. A lot of the corporate related tax cuts were put in place retroactively on the consumer side though, or the household side, you'll see a more direct impact now at the beginning of the year as part of the year end tax filing process.

So we do think that will provide a bit of a boost to the consumer early in the year, and then that will wane throughout the remainder of the year. So one more temporary in nature on the infrastructure spending the base cases that this is going to continue. But there's plenty of uncertainty as we know as companies, you know, continue to assess these investments.

A lot's gonna depend on market reaction and things are moving so quickly, you know, within the tech sector that, you know, this is gonna be a source of continued  uncertainty, but also an opportunity of course for an active asset manager. So it's always good to have a little bit of volatility and uncertainty like we have, you know, from a fundamental economic perspective in a market's perspective as well.

GREG: I mean, maybe taking, you know, kind of both segments you mentioned, right? So AI, you didn't say AI, but I, so I'm simplifying it, but call it AI CapEx as being sort of a pillar and then of course the fiscal stimulus of tax cuts for households. One of the things I've heard you talk about internally a lot recently is this, the notion of a K-shaped economy?

And so, I wanted to, well, maybe you could define that for people listening, but also I, the question I was gonna ask is, we talk about a little bit of a tax boon to households. Is that evenly distributed? Is it all households participating in this growth? Or  are we seeing a little bit more differentiation?

DAN IVASCYN: Yeah, let we, let's talk about the K shape dynamic first here in the United States. You know, there absolutely have been winners and losers across the economy despite positive growth. Those upper income households that own a home as an example are performing particularly well. A lot of these households were able to lock in historically low mortgage rates for 30 years.

While their primary asset, the house has continued to go up in value. So, you know, in the middle income cohort groups and above considerable strength those involved in the tech sector, obviously considerable strength and those that have the ability to own equities have benefited from 15% type equity returns now for 15 plus years. So a very very strong household balance sheets there.

Within the lower income cohort groups, though those that aren't fortunate enough to own a home, more signs of strain and stress, elevated prices, inflation, difficulty owning a home, and until more recently at least elevated and steadily rising rental costs. And beginning to see the negative impacts of tech innovation workers being displaced and challenges around retraining and just struggles again within those cohort groups.

Again, if you don't own a home and you didn't lock in long-term funding, and you have a credit card balance, rates remain quite elevated. So we're seeing some challenges there,  some deterioration there. We don't think there's enough to tip the economy into recession but it bears watching both from a macro perspective over the next several years because this AI innovation, although it could lead to economy wide productivity can create a lot of strain and stress across industries, across households, regions. 

And this is something that we're focusing on very, very closely. I think you can also extend the K shaped concept even on a global basis at the sovereign level, you know, a country like the United States is benefiting tremendously from a core group of technology companies on the cutting edge of this technological development.

Other countries around the world don't have that benefit. In the United States, households locked in low mortgage rates for a 30 year period. The consumer sector isn't facing the strain from, you know, still elevated, you know, short-term interest rates. In other parts of the world that have more floating rate type consumer debt markets, you still see some strain and stress there.

So even though global growth we expect to hold up reasonably well this year, there's tremendous differentiation even across countries. And you could extend that to the fiscal picture and how much fiscal space these various countries have because of elevated debt levels on a global basis. So, you know, although we tend to talk in general terms or simplistic terms about positive global growth, positive US growth there's a tremendous amount of differentiation. And again that's great for active asset management. It reminds us a lot of that, you know, period in the mid nineties, early two thousands much less policy volatility suppression a lot of less synchronized economic cycles, policy cycles. And again, that typically is a good environment to generate incremental return. And above and beyond, you know, what are, you know, pretty attractive bond yields still.

GREG: It's yeah, it's, I mean, I guess the way you just described it, I hadn't thought about it that way, but we've got household haves and havenots and obviously don't make light of any households that are struggling economically, but it's an economic reality in the country. We've got corporate haves and havenots, and we have sovereign haves and havenots.

I'm curious against that backdrop, how do you handicap Fed movements in 2020? If we can shift to the Fed a little bit, 'cause that's sort of the next or at least one of the, that we know of one of the next big things to occur in this year is, of course, a new chairman being selected. So, how are you putting your Fed, you know crystal ball into place and thinking about how they're gonna react to all the inputs you just described?

DAN IVASCYN: Sure. Well the Fed has told us they're gonna be focusing on the data, even when they don't tell us that that's what, you know, the Fed tends to do, so the data's gonna matter. And that there's still significant uncertainty both on the growth and the inflation front. So I think that's, the most important point is that, you know, there's a decent amount of policy  uncertainty out there at this point. With that said, we do believe this is a dovishly inclined Fed.

It's likely to remain dovishly inclined with the new chair. And we do believe that they would like to get rates lower. So our base case thinking is that there'll be enough economic weakness in the base case for the Fed to get rates down towards 3%, or even, you know, 3% in terms of the base case. 

If the data remains strong, if we see any form of meaningful growth, reacceleration or an uptick in inflation, this is a Fed that's gonna be on hold. We do think the bar is quite high to take rates up from here. But we do think this is a Fed, you know, if they do see some concerning signs around reaccelerating inflation or if the economy continues to remain quite strong like some of the more recent prints that we've seen, they're happy, you know, staying on hold here.

So, that's the general thinking. So, you know, the dovish  inclination is something that is certainly supporting risk assets, but again, we're gonna have to wait and monitor the state over the course of the next few months.

We are not at this point in time, you know, here at PIMCO placing, you know, big bets or big positioning on the central bank doing more than, you know, what's currently priced into the curve. We have a much more balanced view. It's been very, very target rich, the trade market pricing versus the Fed the last few years. But for the time being, we're back in more of a neutral position.  We think that the markets are getting it, you know, close to right, in terms of their expectation for where rates go from here.

GREG: And so when I think Governor Miran, you know, mentioned a hundred basis points of front end easing, and I think Secretary Bessent was out even just today in his prepared remarks saying that the Fed ought not to delay. I'm sure we factor those into our analysis, but for the time being you're not making outsized moves based on some of that job owning.

DAN IVASCYN: Well, that's correct. And, you know, policymakers like lower rates, we do believe that the treasury and the Fed would like to get rates lower, but of course markets need to cooperate. Lower front end rates don't necessarily mean lower intermediate or longer maturity rates. In fact even as we've seen the federal funds rate come down over the course of the last year or so as we know longer maturity interest rates are right about where they were actually a little bit higher than where they were at the start of last year.

So people don't want, or policymakers don't want longer maturity yields to go meaningfully higher. So they will be assessing policy based on not only the incoming data but the market reaction to that data as well. And that's why, again, given our view that growth will reaccelerate, that inflation's gonna remain above target, that you still have some uncertainty around tariffs that have been put in place.

And there's a lot of uncertainty even about whether those tariffs stay in what form they take. We think that, you know, betting on a hundred basis points of cuts right now is a bit excessive, at least in terms of base case thinking. 

GREG: Right. And that's interesting, the tariff, I suppose in our growth forecast, there's some thought about those tariffs either being withdrawn or reduced or depending on what the Supreme Court decision ultimately comes out later on in this year, but that could be maybe another accelerant to growth mid-year and obviously would have an influence on the rate dynamic and certainly the revenue and the fiscal dynamic for the US government. 

DAN IVASCYN: That's right. And we think there's a decent chance you get at least a partial reversal, which means that this is gonna continue to be an ongoing source of uncertainty for markets. It could lead to some short-term movement in risk markets as well as bond markets. But again… 

GREG: Let me finish the sentence for you, Dan, that'll make it a great environment for active investing.

DAN IVASCYN: Yeah, yeah, I think so, I think so. Yeah, a lot of movement uncertainty like this, you know, gives you the opportunity to make or lose… 

GREG: Yeah.

DAN IVASCYN: …some money. So yes, it's good to see this uncertainty out there. We just gotta, you know, get our positioning right.

GREG: Yeah. Well, I want to talk about, let's maybe if we can sort of switch to the practitioner side of this and talk about, you know, positioning and the investment outlook, which, you know, I think you referenced really early in this conversation, right? You have the macro foundation, but then of course, there's what the market's already priced in and where our expectations are, where valuations are.

So, you know, I think it's really interesting when we talk about some of the haves and have nots, how our investment views might kind of diverge a little bit just based on prices. Maybe in thinking about the investment outlook, we can cast our minds backward a little bit. And just, I'd love for you to talk about 2025. It was a phenomenal year for a lot of asset classes.

It was a great year for bonds, I think generally, and then the alpha opportunities. You yourself and our team, managing active strategies that did significantly better than, you know, the aggregate indices. And I think, you know, we're quite pleased with the ability to source excess return in last year's market. Maybe you could walk us through, you know, some of the things that worked, some of the things that didn't and some of the themes that you think may carry over or may not carry over into 2026.

DAN IVASCYN: Sure. So let me start with the fact that at the beginning of the year, yields were attractive. After several years of very, very poor bond market performance, yields got to a point where they looked quite attractive on a standalone basis, quite attractive versus equities and quite attractive versus cash. So we had really, really good initial conditions from a value perspective, which still exists to a significant degree today. You mentioned the aggregated index.

We run a lot of portfolios versus that Bloomberg aggregate index. It had a yield, you know, up around 5% early last year. It still has a yield of, you know, around 4.5% today. And it's not a very exciting index. It doesn't have global exposure. It doesn't have a lot of asset-backed exposure. It doesn't capture a lot of other real interesting high quality opportunities.

But again, still offers a reasonably attractive yield in a historical context. Then throughout the year, you really get paid to take advantage of a very broad and global opportunity set. Non-US bonds and stocks outperformed US ones,  the dollar weakened throughout the year, you had lots of opportunities to generate incremental returns by diversifying into other areas of the market, higher quality, emerging markets did very, very well.

Various forms of non-dollar exposure, even sized in small percentages across portfolios performed real well and a tremendous amount of opportunity to actively trade these markets throughout the year. Again, it reminds me of, you know, back in the late nineties, early two thousands period, where there've been a lot of very attractive and incremental forms of return.

Then also the ability to concentrate our positioning in certain maturity buckets mattered a lot last year. We referred to it as a steeper trade, but what that typically means is targeting shorter maturities in our case, approximately buying, you know, five year type instruments and significantly underweighting the long end of the yield curve.

This is an important point because we hear a lot of investors say, well, gosh, you know, the market's rallied. We may have missed our opportunity to lock in returns and fixed income. That's partially true. The market did rally, shorter maturity yields have gone down quite a bit. 10 year yields have gone down quite a bit. But those longer maturities that we were underweight haven't gone down at all and across many markets have actually gone up.

Creating what may very well be an opportunity in 2026 to extend some of those maturities in areas that are now offering yields, you know, well above the Bloomberg aggregate index in government bond markets, high quality markets like ours, almost 5% type yields. And if you do venture into other high quality markets outside the United States, even without taking currency exposure you can quickly get up to 6%, even 7% type yields.

So just one example of an opportunity that's presented itself because of the big moves across different maturities that we witnessed. And then looking into 2026, to some degree it's gonna be more of the same, take advantage of a global opportunity set, stay liquid. What liquidity offers you is investment flexibility. It gives you the ability to react to this shifting global environment to earn more than the starting yield.

And again, that's been a very, very powerful source of return the last couple of years for us. We think that's gonna continue. And what, and again, allows you to do, is to be able to generate very, very strong returns in the fixed income markets without opening yourself up to a lot of economic sensitivity. You know, I'm sure we'll talk more about credit, but what's really, really great is you don't have to take that aggressive lower quality credit risk today to generate attractive returns on this market and we think that this trend's gonna continue again, you know, well into 2026 and beyond.

GREG: No, it was, I mean, it was interesting as you were walking through, you know, some of the sources of alpha or excess return, you know, last year credit we didn't mention that, right?

Or at least corporate credit. And I thought that was an interesting omission, right, given your own views, as we've talked about a number of times on the podcast, you've, for a long time now, you've found corporate credit, just to be in my words, not yours necessarily, but just sort of on interesting, you know, relative to other things that you've got on the portfolio is that theme carrying into 2026 as well? Has there been any reevaluation of that?

DAN IVASCYN: It is now, when you have a positive view on growth when you have a positive view on the tech sector, credit's probably gonna perform well in the base case. But again, as active asset managers with a global footprint in tremendous flexibility across most of our mandates we can buy investments that will perform well when credit's performing well, but that will provide meaningful downside protection. If you do get into a slowing economic environment.

Credit's done very, very well. There's a decent amount of complacency in this market. Underwriting quality continues to deteriorate. So again, we're not screaming from the rooftops like we were in the mid two thousands, you know, that this excess has to unwind in a highly disruptive manner.

We just find it less interesting. And, you know, we view our job as allocators on behalf of our partners and shareholders across these strategies is to try to generate return, even in a risk on environment with more resiliency than you can currently find within the corporate credit markets.

And then again, we have, you know, some more significant concerns in some of the areas that have grown too rapidly. Some of the areas, you know, where you're talking about lending to more levered lower quality borrowers you know, there is an area where we've been, you know, more defensive. And we do think that this dynamic continues.

Now, again, if this is another positive growth year, another year where stocks go up, you know, mid-teens, you know, or provide mid-teens type returns, credit will do well. But we're also confident that our strategies can perform well or even exceed the return of more credit sensitive strategies given the significant relative value advantage that we see in some of these other areas of the market.

GREG: Yeah. Just a risk that you don't need or want to take to get to a result that you think is as good or even superior. I think we talked about the haves and have nots earlier in the discussion. And I wanted to ask you, and this is kind of fresh off the press, I have no idea what you'll say here, but you know, I thought it was interesting, you know, on the one hand, reading headlines this morning about record issuance and, you know, bond markets, not some of that sovereign, but a lot of its corporate credit where $260 billion, I think, you know, week to date, right, to kick off the year as of the Bloomberg headline this morning, by the same token and you alluded to this, but also seeing some of the private credit guys, especially in the wealth market, and the advisors listening to us will be familiar with this, starting to kind of scrape up against their redemption limits and some of their vehicles and obviously seeing flows begin to slow down into that space.

You know, we, you've been asked, and I've been asked about the cockroach phenomenon and the implications of that for private credit. But it was interesting to me to sort of see that, that large issuance number, but then also to maybe see a reduction in confidence at the investor level and some of the private credit stuff. And it strikes me like that could be, that disconnect could be something we see sort of hit a little bit of a reckoning point in 2026. I don't know if you've got thoughts on that.

DAN IVASCYN: Yeah, a few thoughts in you know, I mentioned we're operating from a more defensive position in terms of our overall corporate credit allocation. But we also see significant funding needs and we're seeing a pipeline of deals, even some deals that weren't able to get done late last year out there in the marketplace. So, you know, from a more positive perspective there are certain pockets within the market where you can drive terms, get the type of protections that you want, get good pricing in size. So from a special situations perspective a lot of exciting things that we did last year, and we expect to continue to do, so there are gonna be some real attractive opportunities to source on behalf of our investors. But to your point,  the, you know, around uncertainty these are well integrated markets.

You don't have some private market, you know, off, you know, isolated from public markets. Issuers understand this, and they regularly test different alternatives on what market they can issue into. These are reasonably substitutable across more flexible asset managers. So when you have challenges in one sector there are typically, you know, challenges in other segments of the credit market.

And, you touch on a dynamic that bears watching, and that is that when you look at publicly traded vehicles that hold a lot of private credit or private real estate debt or equity, they weakened more recently. And there's a practical limit to how great a gap can be within the tradable segments of the market in the non tradable segments of the market, because when you see that gap widen, the most obvious trade to do is to sell the positions that are marked meaningfully higher than where those are trading in the public markets, and you've seen that dynamic on a more isolated basis.  

But this is a concern, and this will likely be a catalyst to a more significant credit widening if that gap grows and it'll likely grow at a point in time where people are getting a bit more nervous about economic growth more broadly. But you're also, you know, have another dynamic that is actually mentioned a lot less, and this relates to this AI related innovation, an increase in productivity.

There’s a tendency to think, well, okay, you know, when growth  strong credit does well, and that's true in a macro sense, but if growth is being fueled by highly disruptive new technologies, what may work for the economy as a whole can be quite detrimental for certain segments of the older economy.

And I think some of the strain and stress you've seen in the direct lending space, even in the senior secured loan space is associated with these early stages of technological disruption. So I think this is gonna be a theme over the next few years, that even though if the economy remains strong and stocks keep going up, credit in general can continue to perform, there are gonna be more losses and if you are in those segments of the market where the losses are elevated, your experience may be very, very different than the market as a whole, again representing the need to be defensive, cautious, targeted in terms of your overall underwriting.

So again, there's gonna be a lot of exciting things to do, but there're gonna be elevated losses than what people have grown accustomed to, at least during most of the years coming out of the global financial crisis.

GREG: Yeah. This theme of the haves and the have nots and the comment you made earlier, just that the beauty of liquidity is the ability to change your mind. And it, and I, from what you're laying out, I suspect, you know, and I mean this you know, in the best possible way, like I suspect, Dan, that you'll probably change your mind a number of times this year based on the data and the metrics that come in.

It's shaping up, it seems like to be a year where you have to be really, really focused on the fundamentals and, and the micro to make sure that you're getting the macro right.

DAN IVASCYN: Absolutely. And this has been a theme in the market the last few years. People, you know, there tends to be, and a lot of times this comes from people that have more of a private credit background, you know, a focus or even a fixation on starting yield as if, well, you know, that's the most you can get unless there are losses that either way at that yield. But you know, in markets where you have this type of flexibility you have the ability to change your mind even just a little bit along the way.

So typically, your starting yield is a floor on what you learn. If you own a flexible and public fixed income, you know, over a three to five year period. And if you make a few thoughtful asset allocation decisions along the way, you can stay in the higher quality area of the market, and you can add incremental returns above and beyond but are still attractive yields.

If you look at the performance last year across a lot of our strategies and other strategies out there that have these characteristics, that's precisely what happened. And by shifting again, you know, perhaps from those five year maturities that did so well last year into longer maturities that didn't do as well that's the next tool in the toolkit, or a tool in the toolkit to generate incremental return above what are still, you know, pretty good starting yields.

And again, we didn't talk about this yet. I think a lot of the listeners are probably in cash right now. We get it, 2022 is an experience that I'm personally still recovering from in terms of, well, you hear me say this, or volatility.

You know, people discovered the wonders in non-market to market accounting during 2022 because, you know, almost everything went down other than the private stuff, but, the, you know, the point there is that cash rates are probably going lower. The Fed wants to get 'em lower, we think they get down to at least 3%, but the cost of holding cash has steadily gone up the last year or two. While yields have remained quite attractive in longer maturities.

So I think investors are gonna begin to feel that cost in terms of the yield given that exists today, but which is likely gonna further erode over the course of the next few months. So even from a defensive perspective, the idea of extending out the curve a little bit, extending into a longer maturity fund, and you don't have to go all the way up to 30 years likely makes a lot of sense from a strategic perspective as well.

GREG: It's a really important point, I think that we try to make in all our conversations with advisors that the cost of suppressing volatility in your client's portfolios can be really high.

If you're doing that by maintaining an excess cash balance, you're potentially, you know, not taking advantage of really excellent risk adjusted return that's available to you in other parts of the market, if you're doing that by staying in private products that marks to a model and the market is telling you that similar products, as you said, Dan, similar exposures that are marked to market are at a 10, 15%, you know, discount on average, by definition, you're costing your clients, you know, additional return that would be available if you made the switch. And I think that'll, you know, I hopefully, that's a theme that we can talk about more on the pod this year.

And then, and a little bit more of a return to that nineties environment that you mentioned where volatility was more friend than foe and something to be taken advantage of not something to be necessarily afraid of. Do you mind if we, I, you mentioned tools in the toolkit, and I did want to, this has been a global week.

We're recording this on Thursday, January 8th, and of course we had the news on Venezuela this past weekend. There is a lot of talk about Greenland in the news these days and the global toolkit's been so important to you over the last few years. I'm curious if you could just give our advisors a, you know, quick rundown of some of the opportunities you're seeing around the world and why they exist and what you think is most interesting.

DAN IVASCYN: Sure. So I, you know, we talked earlier about, you know, still attractive interest rates here in this country but the United States is somewhat unique in that we're running quite elevated deficits, which means we have to issue a lot more debt. And our economy's reasonably strong, meaning that we probably, you know, have rates that remain elevated for a more extended period of time.

So both, you know, some fiscal concerns or fiscal deterioration at a time where, you know, growth and inflation, you know, remain high and strong or strong and high. Outside of the United States, though, there are many countries with a very, very solid fiscal picture with yields higher than the United States with economies in some cases that are a bit more fragile.

So you can actually pick up yield, pick up credit quality, pick up diversification by simply selling a few US bonds and buying other high quality alternatives around the globe. Australia is a good example. The UK, which has the challenges associated with a smaller open economy and their own currency, but they too offer quite attractive yields versus the United States.

And by owning some of them you can pick up not only incremental return, but reduce overall portfolio volatility, higher quality emerging markets well ahead of the curve on managing inflation coming out of the COVID period offer very, very high real interest rates relatively the United States, again, an area that helped generate some returns last year, an area that still looks quite attractive. You can hedge that back to the US dollar to reduce volatility or take a little bit of currency risk.

The dollar weakened, you know, quite significantly during the first half of last year. We expect over the course of the next few years the dollar weakening trend to continue, it'll be bumpy. We don't wanna have a tremendous amount of non-dollar exposure across most of our portfolios, but a great source of diversification.

So, you know, at the end of the day, a little bit of currency exposure, a little bit of exposure to global rate markets has this wonderful combination of giving you higher returns, lower risk, more diversification, less portfolio volatility which again is a situation we didn't have for many years. For the longest of times, you know, you looked at yields on a global basis, they were low, you subtracted inflation, you ended up with a negative number in some parts of the world, you started with a negative number.

Things have changed a lot and we do think over the course of the next year or two the global investment community is gonna begin to appreciate that more. And that can be a catalyst for not only yield generation, but very, very strong continued price performance as well.

You pick up your Bloomberg and all you hear about is private credit, primarily US private credit, very little talk about emerging markets, very little talk about global bond investing, because lots of people walked away from those markets when there was no value. This tends to be a real, real good setup when you go from very, very rich valuations to cheap valuations. And then you get the wave of money coming a bit late but moving into areas that have been under owned for many, many years.

And of course, that money typically comes out of areas of the market that we're over owned or over allocated to. So we haven't seen that wave yet. But this also is an example of the positive optionality you have by shifting into a global opportunity set, because at some point it'll come and that's when you can take, you know, attractive returns end up with, you know, really, really, really strong relative performance.

We had a flavor of that last year, but we do expect more of that dynamic, you know, when it happens, we don't know for sure. But it's an exciting time for investors now because we do think that that dynamic exists and creates the potential for even more incremental return than we talk about in the base case.

GREG: Yeah. I think it's interesting the, you know, I, our, the advisors that we speak to or we ourselves, you know, sitting in the US you know, often have a bit of a home bias, and it makes sense, right? We spend money on things in dollars for the most part, living here and in the United States. So there's always a little bit of a, I think for us when we talk about international markets you know, you've gotta kind of get over that bias.

I'd note it's been interesting to us watching over the last year or so some of the institutional pockets of capital in the US and certainly some of the platforms where advisors work have been allocating discretionary portfolios a little more globally. And they often are a little bit of a leading indicator to your point, that maybe some money will follow that, you know, later in the year. So that's a really interesting dynamic.

Well, Dan, I wanna let you get back to markets. 'cause it does sound like you're gonna be pretty busy in 2026. But thanks for taking the time outta the gates with us to sort of set things up. Any closing comments you wanna offer to the folks listening?

DAN IVASCYN: Oh, well you know, always thanks. You know, we appreciate all the support of the listeners to the podcast and investors in our products. It's great to be able to spend some time with you and kick the year off and talk about some trends and themes, but we only scratch the surface. So, you know, wanna be available, make the team available to have more micro direct discussions with folks in areas of particular interest.

So, you know, although we're kicking things off, we wanna make sure that we communicate well, we listen to feedback and try to take some of these more formal discussions, you know, down, you know, to the individual level or the group level and continue the dialogue. But again, it's been a great kickoff, the year in this way and I'm already looking forward to next year's version.

GREG: Yeah, yeah, yeah. Well, no, we're gonna get you back mid-year, Dan,  don't duck. We got you in June. I think it's already on the books. And that's gonna be our pattern going forward. Hey, that's a perfect segue. If anything on the pod today interested you and you'd like to follow up or learn more visit us @pimco.com or the PIMCO website in your home country.

If you identify yourself as a financial advisor here in the US, you'll be taken to Advisor Forum, which is our one-stop destination for you to get what you need practically and efficiently and to go deeper on all of these issues. We'll be back in a couple of weeks with another episode. Wanna wish all of you the very happiest of New Year's and great success and good fortune in 2026! Thanks so much!