Text on screen: PIMCO
Text on screen: Prerna Gupta, Fixed Income Strategist
Gupta: Dan, in an environment where resilience may matter more than reaching for additional risk, how are you positioning the portfolio from a high level perspective to deliver attractive income while helping investors navigate uncertainty?
Text on screen: Dan Ivascyn, Group Chief Investment Officer
Ivascyn: So overall duration positioning has increased alongside interest rate increases the last few months. I would simply say that this is not about a Fed bet. It's simply acknowledgement that there's much better value in the bond market.
We have some of the highest overall interest rates in the higher quality bond market that we've seen in about 20 years.
So we start with this idea that you don't need to predict the future in a narrow sense to generate attractive returns. We can take advantage of a diversified, attractive global opportunity set to try to generate incremental return above and beyond passive alternatives.
Gupta: Where across global markets within emerging markets are you seeing the most interesting opportunities?
Ivascyn: We think global diversification, whether it's small amounts of currency exposure, emerging markets global, are gonna lead to more resiliency at the portfolio level, and in many cases, incremental and attractive yield pickup relative to just a overweight to corporate credit, given just how tight spreads are and how complacent segments of that market continue to be.
The other area that's looking increasingly attractive are opportunities to take advantage of some of the strain, stress and liquidity needs within the direct lending or the private credit space. We're seeing much more deal flow now that many private credit managers are increasingly on the sidelines or not able to support deals like they did just a few quarters ago. Some of these would be higher quality investments within the CLO space.
So, I 'd categorize, our structured credit positions as continuing to be attractive, the ballast of the portfolio should be stable from a credit performance perspective, but other things around them have begun to cheapen up and in some cases cheapen up quite significantly.
Gupta: Today's bond market looks very different than it did just a few years ago. How should investors think about the role of fixed income in portfolios today, and what return and risk characteristics could high quality bonds offer going forward?
Ivascyn: Today when you look at value in the bond market, whether you look at nominal yields or absolute yields, or you factor out inflation, and you look at what's left, which is known as the real yield, we're at some of the most exciting and attractive levels we've seen in several years, attractive in an absolute sense, attractive versus cash attractive, in fact, very attractive versus equity valuations.
For the longest time people, became accustomed to this idea that your starting yield is what you could expect to earn.
We think that that's more of a floor concept, and we think with good, prudent, thoughtful, creative asset allocation within the more liquid segments of the market, this is again, a very exciting time for return generation.
But if you step back and think about the attractive income that could be generated today, the type of returns you can generate with a high quality flexible opportunity set. You can be patient, have a patient mindset, and just sit back and let the yield do the heavy lifting across portfolios.
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