over 3 years ago • 2 mins
Like mixing the perfect summer cocktail, creating an investment portfolio requires a blend of complementary ingredients. Thankfully, here comes asset management giant Pimco with a full bodied and fruity report detailing their top recipes for coming seasons.
These are undoubtedly troubled times. And Pimco thinks the global economy is facing an “unusually wide” set of outcomes over the coming year: with the potential for a strong recovery as businesses emerge from lockdown on one side and the risk of a second wave of coronavirus on the other. The lack of certainty demands that investors “consider building portfolios that can weather a range of future paths.”
That means putting some money into assets that should do well if the economy can return to growth – namely stocks and company bonds – and the rest into a “risk mitigation component” of longer-term government bonds, gold, and “safe haven” currencies like the Japanese yen and the Swiss franc.
While it’s far from hard to find voices warning that stock markets currently look expensive, Pimco reckons that valuations are “fair” when compared to the level of central bank support, inflation, and consumer sentiment.
Pimco particularly likes US stocks – even though they’re more expensive than other regions – because of the large number of companies able to “reliably generate attractive earnings growth.” Those in the tech and innovative healthcare sectors are most desirable of all.
And when it comes to government bonds, Pimco likes the look of US and Australian debt due for repayment in about 10 years – because their higher yields have “more room to fall” if markets get spooked.
Outside of stocks and bonds, they favor gold and inflation-linked bonds as protection against “surprise” inflation: even though they see few signs of imminent flare ups. The precious metal tends to move inversely to real yields – bond yields minus inflation – and looks “slightly cheap” on that measure at the moment.
“Portfolios that are thoughtfully constructed, well-diversified, and sufficiently nimble will likely be in the best position to navigate the months ahead,” Pimco concludes.
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