Current Views

Overall Dial
As of 9 August 2017

Overall Risk Position

With the macroeconomic backdrop evolving in the face of potentially negative pivot points and considering asset prices generally are fully valued, we are modestly risk-off in our overall positioning. Note this is a shift in our views from the start of the year. We encourage investors to consider actively managing their portfolios, emphasizing relative value and security selection. We recognize events could still surprise to the upside, but starting valuations leave little room for error.

Equities Dial
As of 9 August 2017

Equities

While we are more constructive on equities relative to other risk assets, in light of the recent rally we are maintaining an underweight to U.S. equities. Potential changes to U.S. tax policy and regulation may provide further support to domestically oriented U.S. corporations, while continued USD weakness would support the export-oriented sector. We are moderately bullish on European equities, with growth in the region above trend and an accommodative ECB. We currently have a small positive allocation to EM as a long-term value play.

Rates Dial
As of 9 August 2017

Rates

We remain defensive on interest rate exposure. However, in contrast to the equity market, we find the U.S. the most attractive. Beyond the U.S., we find UK gilts and Japanese government bonds rich, and we believe valuations of eurozone peripheral bonds are suspect without continued ECB support.

Credit Dial
As of 9 August 2017

Credit

At this later stage in the business cycle, investors should appreciate the limited spread-tightening potential of corporate bonds as well as the downside potential for defaults or spread widening. Our credit allocation is focused on non-agency mortgage-backed securities, which will likely continue to benefit from an ongoing recovery in the U.S. housing market and remain well-insulated from many global risks. We also focus on bottom-up security selection informed by our rigorous global credit research.

Real Assets Dial
As of 9 August 2017

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. While we expect U.S. inflation to remain muted in the near term, longer-term risks remain. We have increased our allocation to real estate investment trusts (REITs) as valuations are attractive given their recent underperformance.

Currencies Dial
As of 9 August 2017

Currencies

We continue to favor 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.

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Disclosures

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


All investments contain risk and may lose value. 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 the current low interest rate environment increases this risk. Current 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. Inflation-linked bonds (ILBs) issued by a government are fixed income securities whose principal value is periodically adjusted according to the rate of inflation; ILBs decline in value when real interest rates rise. Treasury Inflation-Protected Securities (TIPS) are ILBs issued by the U.S. government. 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. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government-agency or private guarantor, there is no assurance that the guarantor will meet its obligations. REITs are subject to risk, such as poor performance by the manager, adverse changes to tax laws or failure to qualify for tax-free pass-through of income. Tail risk hedging may involve entering into financial derivatives that are expected to increase in value during the occurrence of tail events. Investing in a tail event instrument could lose all or a portion of its value even in a period of severe market stress. A tail event is unpredictable; therefore, investments in instruments tied to the occurrence of a tail event are speculative. Derivatives may involve certain costs and risks, such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. Diversification does not ensure against loss.


Management risk is the risk that the investment techniques and risk analyses applied by the investment manager will not produce the desired results, and that certain policies or developments may affect the investment techniques available to the manager in connection with managing the strategy. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.


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. 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. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. 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. ©2017, PIMCO.

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