Economic and Market Commentary

Positioning Portfolios for 2024

Find out how we’re positioning portfolios across global asset classes for the year ahead, with Geraldine Sundstrom, portfolio manager and head of 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: 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. 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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. 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CMR2023-1114-3227537

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