(December 14, 2011) — US investors’ asset allocation decisions have become more complex and challenging, according to Pacific Investment Management Co. (PIMCO).
Three years ago, PIMCO launched its Global Multi-Asset Strategy to provide clients with an alternative way to think about a multi-asset global portfolio. In a new report published on PIMCO’s website explaining the strategy’s investment framework, the firm’s CEO and co-CIO Mohamed El-Erian said: “On design, we felt it important to provide those clients looking for absolute returns the ability to tap the range of liquid global markets in order to find what we view are the most compelling places to generate returns and manage risk. Thus, we included global equities, commodities, currencies and fixed income…On the analytics, we recognized that correlations across asset classes could change radically and therefore it was critical in our view to focus on risk factors (for example, equity or currency risk) and consider their relationship across seemingly diverse assets. We also came to understand that diversification would be necessary but not sufficient for risk management, and we saw the need to incorporate tail hedging focused on minimizing the impact of severe market downturns.”
When asked about the broad allocations of the strategy and how are they informed by PIMCO’s worldview, El-Erian replied: “At PIMCO, we believe much of what is occurring can be reduced to four basic factors that play an important role in our approach to positioning the strategy.”
Those four factors, he said, are the following:
1) Balance sheets – whether there is balance sheet strength or weakness.
2) Growth exposure.
3) “Policy and politicians.” El-Erian noted that policies and politicians play an influential role in determining both absolute and relative market valuation.
4) Social movements at play around the world.
According to El-Erian, PIMCO’s strategy is generally defensive in terms of equity risk. “Also, we are high in the capital structure in terms of our corporate positions and our sovereign positions, and that includes completely avoiding Europe’s peripherals – Portugal, Greece and Ireland,” he said.
Furthermore, El-Erian noted that the fund has shifted its thinking about commodities. “A year ago, we believed that commodities across the board had value and our commodity exposure was notably higher, including through generalized commodity exposures. Today it is a highly selective commodity exposure,” he asserted.