US fixed-income house Pimco is maintaining a moderate overweight to risk, sticking to its base case that a global recession is not imminent.
In its mid-year asset allocation update, Pimco said it was focusing on maintaining portfolio liquidity “in light of stretched valuations and complacency across many assets”.
Pimco said it was keeping a ‘risk-on’ position, but added that the level of risk the company is taking on was “lower than normal”, anticipating that “low market returns will be the norm for the foreseeable future”.
“Growth remains slow, extremely low government bond yields persist and central banks are slowly approaching the limits of monetary accommodation,” the company said.
Pimco lists credit as a “good way to escape negative yielding assets without taking excessive risk”, particularly investment-grade corporate bonds.
“Demand for these securities should be supported by the large pool of negative-yielding government bonds and purchases of corporate bonds by the European central banks,” it said.
Real assets are also particularly attractive, the firm said, though favouring REITs and US Treasury inflation-protected securities (TIPS) rather than gold, which the company argued is “rich to its implied fair value”.
“We seem to hear gold described as both a good inflation hedge and a good deflation hedge [rather] than we hear [of] a framework to value it as such,” Pimco said.
The firm also noted that structural alpha is increasingly important “as an uncorrelated return generator at a time when most asset class valuations are dominated by central bank actions”.
“Our modestly ‘risk-on’ portfolio positioning reflects our baseline macro outlook that a version of the status quo continues to evolve gradually,” Pimco said.