The market is in a dynamic of change and for PIMCO this does not have to be something negative for the investor, but an opportunity to capture good investment options. In this sense, the firm defends five assets that can contribute and help to position the investors’ portfolios.
The first opportunity that the manager defends are the mature and short-term bonds , one of the most attractive assets within the variable income and despite its bad moment. In his opinion, within the change of trend that central banks are setting with the horizon of rising interest rates, short-term US corporate bonds are offering attractive returns. “Their shorter maturity not only makes them less sensitive to higher rates, but they can also be more defensive in case of slowdown or recession,” he says.
The second of your options are emerging currencies . The manager proposes to have in the portfolio a basket of currencies from emerging countries, something that may sound unpopular considering what happened this summer with the currencies of Turkey, Venezuela or Argentina. As they argue from PIMCO, “we believe that the inferior performance is exaggerated given the current risks, and there are value pockets in emerging markets that with rigorous research and an active management approach can be discovered. There seems to be an unexplained risk premium associated with emerging market currencies, which leads us to conclude this asset within a diversified and appropriately sized investment in a long-term asset allocation. “
PIMCO also bets on a traditional asset: gold . “It is a real asset that not only serves as a store of value, but also as a means of exchange, and that tends to overcome episodes of risk. As such, one would expect gold to perform better during the recent period of rising inflation expectations along with the increased risk of recession. However, from the intuitive point of view, it has had a lower performance in relation to its historical average, “he says in his latest report. For this reason, it considers that gold is an opportunity to add a risk coverage to the portfolio and taking advantage of its attractive valuation.
The last two opportunities that PIMCO highlights are the large capitalization companies and the assets that offer a risk premium . On the first, the manager highlights that despite the very positive behavior of the shares of capitalization companies, their “lower quality, value and greater volatility” is not offset by the profitability it offers; so the manager opts to invest in a large capitalization company. “According to the criterion of looking for high quality assets to overcome this stage of the cycle, and given the entry points, we favor the overweight of large capitalization in relation to small capitalization companies,” explains the manager.
Finally, PIMCO argues that greater volatility and tighter valuations will result in lower returns adjusted to the risks. “While smart beta strategies have been proliferating recently, so far these have focused mainly on stocks, a class of assets that has been well undermined by academics but in which it is still possible to find risk premiums and alpha strategies that are not correlated with the economic cycle. Meanwhile, there is a rich universe of strategies available in the fixed income and commodities markets that can be combined with stocks and currencies to form diversified portfolios that seek to take advantage of the benefits of alternative risk premiums, “he concludes