Pimco Retains Favorable View on Global Equities, But Prepares for End of Cycle

Pimco published the conclusions of its last Cyclical Forum on the theme: “Investing in a rapidly changing cycle”. The peak of fiscal policy support, and therefore the peak of real GDP growth, was probably reached in 2021, the management company said. The global economy now appears to be moving rapidly towards end-of-cycle momentum. In most regions, monetary policy has changed course to normalize.

Frictions in the goods and labor markets have boosted inflation. According to Pimco’s baseline scenario, global inflation will peak in the first quarter and then approach central bank targets by the end of 2022. The manager is watching closely for upside risks from this point of view.

Risk premia and returns do not reflect potential downside scenarios, which justifies prudence and a rigorous approach in building portfolios, writes Pimco.

The manager generally favors an underweighting in duration relative to the benchmark and seeks to position the portfolios according to a steeper yield curve. Given the likelihood of higher volatility, he believes active duration management may be a more important source of alpha than in the past.

Pimco seeks exposure to credit from a variety of sources, including unsecured US mortgages, certain topics related to the post-Covid-19 recovery, and related opportunities from specific originators. The manager has a favorable view on global equities, but is preparing for the end-of-cycle momentum, focusing more on stock selection.