There are still some alpha opportunities to be found in this uncertain investment climate, fixed income giant Pimco has said.
The $1.76 trillion money manager continues to support a defensive, high quality equity portfolio this year, while building liquidity to take advantage of rarer buying opportunities.
The general climate and forecast for the year points to higher levels of volatility and broadly slowing growth, a result of the increasing geopolitical uncertainty.
Given this, Pimco remains moderately underweight risk, and has increased its high dividend yielding equities, which should benefit from lower sovereign bond yields. The firm also favours large caps over small caps, and US equities over European equities.
According to Pimco, many investors tend to think of US markets as being more expensive compared to Europe, Japan, or emerging markets.
Considering profitability, growth, and volatility differences however, show return on equity in the US being above average, and 30%-50% higher comparatively.
Pimco is overweight rates and real assets, preferring high quality duration in the late-cycle environments. Fixed income is seen as an attractive diversifer for risk, and while the firm remains selective in exposure, US rates have been identified as the most attractive in developed markets.
Real assets, which have performed well in such climates historically, can also be employed as tail risks hedge against rising inflation.
While dovish central bank sentiments have largely offset and eased financial conditions, in the face of absence in macroeconomic recovery signs, Pimco advocates for liquidity in a high quality portfolio.