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How is PIMCO preparing for a changing macroeconomic backdrop?

How is PIMCO preparing for a changing macroeconomic backdrop?

By Mihir P. Worah & Geraldine Sundstrom

We think markets face uncertainty in interest rate, trade and fiscal policies. Geopolitical risks and possible policy missteps in China also cloud the outlook. With such critical pivot points on the horizon, we are advocating a defensive stance and approaching asset allocation with full appreciation for downside risk and a focus on relative value and security selection.

Here is a summary of how we are positioning our asset allocation portfolios in light of our broad, near-term outlook.


We remain defensive on interest rate exposure, but we find the U.S. the most attractive. We find UK gilts and Japanese government bonds rich, and we believe valuations of Eurozone peripheral bonds are suspect without continued ECB support.


We’re more constructive on equities relative to other risk assets, but we’re maintaining an underweight to U.S. equities in light of the recent rally. We are moderately bullish on European equities and have a small positive allocation to emerging markets.

Real assets

We maintain an overweight to real assets, with a focus on U.S. Treasury Inflation-Protected Securities (TIPS). Inflation expectations have risen recently, yet we believe there is still value in TIPS as the market is underpricing U.S. inflation risk.


We continue to favour small tactical positions in some of the higher-carry “commodity currencies” given still-attractive valuations. Asian economies have benefited inordinately from global trade, but are likely to weaken in the face of slowing Chinese growth.

For more insights into investing across global asset classes, see our asset allocation outlook midyear update, Preparing for Pivot Points.

All investments contain risk and may lose value. This material is intended for informational purposes only. Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. No part of this material 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 L.P. in the United States and throughout the world. THE NEW NEUTRAL is a trademark of Pacific Investment Management Company LCC in the United States and throughout the world. ©2017, PIMCO.

This article was provided by Pimco and does not necessarily reflect the views of Citywire

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