According to the Pimco Asset Allocation Outlook, authored by CIO asset allocation and real return Mihir Worah, investors should give the most weight to equities and credit.
“We believe an overweight to equity risk is still warranted and see pockets of opportunity across credit sectors,” the report states.
In the equities market, Pimco said it favoured European and Japanese equities on a currency hedged basis and “find attractive investment opportunities in emerging Asia”.
Meanwhile, credit investors should focus on fixed-income sectors that are less sensitive to rising rates, with European peripheral debt, US non-agency mortgage-backed securities, and select EM debt sectors offering attractive opportunities, Pimco said.
On the other hand, currencies were given a low weighting by the report, with both the euro and yen expected to decline versus the US dollar.
“On currencies, our dominant cyclical view in multi-asset portfolios remains the US dollar overweight versus other G-10 currencies as a result of diverging economic growth and – importantly – diverging central bank actions,” the report said.
Pimco also rated real assets as low value, taking a neutral stance on commodities but a negative outlook to gold and oil.
“We believe current oil prices will not support the amount of supply growth required to balance the markets,” the report said.
“We also have a negative outlook for gold prices in 2015 as real interest rates are likely to move higher.”
Overall, Pimco predicted 2015 would be a challenging year for investors and urged them to take a diversified approach to their portfolios.
“Persistently low yields, divergent monetary policies in major economies, extremely low oil prices, volatile currencies and geopolitical concerns all confront investors this year,” the report said.
“In asset allocation portfolios, this means reaching beyond beta and looking for relative value opportunities across regions and sectors in an effort to achieve risk and return objectives.”
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