Economic and Market Commentary

Targeting Relative Value Opportunities

Learn where we’re finding interesting opportunities across and within asset classes, with Erin Browne, asset allocation portfolio manager, and Justin Blesy, asset allocation strategist.

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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: Justin Blesy, Product Strategist, Asset Allocation

Justin: Hi, I’m Justin Blesy, asset allocation strategist, and I’m joined by portfolio manager Erin Browne. Erin, thank you for joining us today.

How do PIMCO’s asset allocation views influence our positioning in multi-asset portfolios?

Erin: We expect continued volatility in financial markets for the foreseeable future.

Text on screen: Due to a slowing economy, we are cautious on overall risk in our portfolios

Images on screen: Small town Main Street

We are cautious on overall risk positioning because of the environment where the economy is likely to slow over the course of the next 12 months.

Text on screen: Erin Browne, Portfolio Manager, Asset Allocation

The most notable expression of this right now in our portfolios is through equities. Historically, equities have weakened heading into a recession and we think right now that the risk/reward is really skewed to the downside given where valuations are today.

Our estimates suggest a much stronger decline in earnings than the market is currently anticipating and therefore we see further downside risk within equity markets.

Text on screen: We see attractive opportunities in fixed income as yields have reset higher

Images on screen: Stock market ticker

On the other hand, we do see attractive opportunities in right now fixed income markets. Yields have reset higher over the last year and as inflation begins to moderate, we think that fixed incomes are poised really well to outperform.

With higher yields, policy rates are approaching terminal levels, and inflation is showing signs of decelerating, the backdrop for owning fixed income has dramatically improved.

Text on screen: We believe high-quality fixed income will resume its role as a diversifier

Images on screen: PIMCO trade floor

Moreover, we believe that high quality fixed income will resume its role as a diversifier versus growth risk particularly as we enter a weaker environment, assuming that inflation remains contained.

With respect to duration positioning, we spent most of 2022 underweight, but we’ve shifted now to a more neutral position within our portfolios.

Text on screen: In credit, we are emphasizing high-quality issuers

Images on screen: Residential neighborhood

Within credit, we’re really emphasizing higher quality issues as well as sectors that can withstand a weaker economic environment.

We expect that further dislocations, such as the one that we most recently experienced in the bank capital market will continue. And these events can really present compelling opportunities for active investors like PIMCO.

Text on screen: TITLE – Notable themes in portfolios today: BULLETS – Fixed income, Real assets, Currencies, SUB-BULLETS: Select emerging market currencies, BULLETS - Inflation-linked bonds, High-quality credit, Emerging market rates and equities

We talked earlier about how excited we are about the opportunity in fixed income markets, but we’re also starting to see really attractive investments in real assets and currency markets as well.

And one high conviction theme that we have right now in our portfolio is emerging market currencies, such as Thai Baht, Brazilian Real, and Mexican Peso which benefit from cheap valuation, high carry, and improving fundamentals.

We also think that there are interesting ways to hedge against an inflation surprise, particularly through owning inflation linked bonds which are pricing in a much faster normalization than we expect with respect to inflation.

Overall, we are finding interesting relative value opportunities across asset classes, as well as within asset classes. For instance, we think that high quality credit offers an attractive alternative to equities in the current environment, and that EM assets -- both rates and equities -- also are appealing to their developed markets counterparts. So while we are cautious overall on risk, we think there are a lot of reasons for us to be really excited about the opportunities in front of us.

Text on screen: For more insights and information, visit pimco.com

Text on screen: PIMCO

Disclosure


Past performance is not a guarantee or a reliable indicator of future results.

Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Diversification does not ensure against loss.

Asset allocation is the process of distributing investments among various classes of investments (e.g., stocks and bonds). It does not guarantee future results, ensure a profit or protect against loss.

The credit quality of a particular security or group of securities does not ensure the stability or safety of the overall portfolio.

The terms “cheap” and “rich” as used herein generally refer to a security or asset class that is deemed to be substantially under- or overpriced compared to both its historical average as well as to the investment manager’s future expectations. There is no guarantee of future results or that a security’s valuation will ensure a profit or protect against a loss.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision. Outlook and strategies are subject to change without notice.

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) is authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963), PIMCO Europe GmbH Irish Branch  (Company No. 909462), PIMCO Europe GmbH UK Branch (Company No. 2604517) and PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 15 of the German Securities Institutions Act (WpIG).  The Italian Branch, Irish Branch, UK Branch and Spanish Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority; and (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and  203  to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. 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). 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 (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 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 Unit 3638-39, Phase II Shanghai IFC, 8 Century Avenue, Pilot Free Trade Zone, 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. | PIMCO Japan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association, The Investment Trusts Association, Japan and Type II Financial Instruments Firms Association. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is managed and operated independently. The reference number of business license of the company approved by the competent authority is (110) Jin Guan Tou Gu Xin Zi No. 020. 40F., No.68, Sec. 5, Zhongxiao E. Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.). Tel: +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO Latin America Av. Brigadeiro Faria Lima 3477, Torre A, 5° andar São Paulo, Brazil 04538-133. | No part of this publication 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 LLC in the United States and throughout the world. ©2023, PIMCO.

CMR2023-0501-287676

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