PIMCO commentary discusses factors that limit returns and increase risks. But what are the implications for investors?
The future over the next three to five years, as seen through the lens of PIMCO’s Secular Outlook, is stable but not secure. “[W]hile we do not see a global economy heading toward recession, we also do not see readily available means to stimulate aggregate demand and drive accelerated growth,” the piece reads.
Citing the most immediate and prevalent dynamic – diminishing returns from central banks’ monetary policy and probable inadequacy of fiscal policy to fill the gaps – the outlook predicts volatility that will leave investors vulnerable to both negative and positive shocks.
Individual investors will feel a pinch
Individual Asia-Pacific investors were spotlighted as vulnerable to specific threats. Japanese retirees contend with decreasing passive income due to negative interest rates; Australian investors are entering the decumulation phase in their superfunds; and Asian high-net-worth investors are transitioning from first-generation family-owned enterprises to diversified portfolios.
“They need to generate sustainable income to support spending ‒ and must do so in an environment where interest rates and risk premiums are low and volatility is high,” the piece reads.
Citing lower forward-looking returns due to decreasingly effective central bank policies and probable populist shocks in the same vein as Brexit, it asserts that “capital preservation is the number-one priority”, though proper active management by qualified professionals could help immensely.
Institutional investors must expand their strategies to bolster returns
“For large institutional investors ‒ banks, sovereign wealth funds, pension and superannuation plans, foundations and endowments ‒ this environment is no less daunting,” the commentary reads. “High single-digit (let alone double-digit) return targets are unlikely to be achieved through traditional betas, and risks from both the left and right tails are real.”
For such investors, the firm prescribes different strategies to hit their return goals. In particular, they recommend global asset and risk diversification, opportunistic investment in undervalued assets during times of volatility, and providing liquidity for others who might need it.
Overall, the firm sees the global economy going through a slow, plodding phase of stable but lackluster growth, which demands that investors strive to achieve better returns and protect themselves against risk.
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Citing the most immediate and prevalent dynamic – diminishing returns from central banks’ monetary policy and probable inadequacy of fiscal policy to fill the gaps – the outlook predicts volatility that will leave investors vulnerable to both negative and positive shocks.
Individual investors will feel a pinch
Individual Asia-Pacific investors were spotlighted as vulnerable to specific threats. Japanese retirees contend with decreasing passive income due to negative interest rates; Australian investors are entering the decumulation phase in their superfunds; and Asian high-net-worth investors are transitioning from first-generation family-owned enterprises to diversified portfolios.
“They need to generate sustainable income to support spending ‒ and must do so in an environment where interest rates and risk premiums are low and volatility is high,” the piece reads.
Citing lower forward-looking returns due to decreasingly effective central bank policies and probable populist shocks in the same vein as Brexit, it asserts that “capital preservation is the number-one priority”, though proper active management by qualified professionals could help immensely.
Institutional investors must expand their strategies to bolster returns
“For large institutional investors ‒ banks, sovereign wealth funds, pension and superannuation plans, foundations and endowments ‒ this environment is no less daunting,” the commentary reads. “High single-digit (let alone double-digit) return targets are unlikely to be achieved through traditional betas, and risks from both the left and right tails are real.”
For such investors, the firm prescribes different strategies to hit their return goals. In particular, they recommend global asset and risk diversification, opportunistic investment in undervalued assets during times of volatility, and providing liquidity for others who might need it.
Overall, the firm sees the global economy going through a slow, plodding phase of stable but lackluster growth, which demands that investors strive to achieve better returns and protect themselves against risk.
Related stories:
Go defensive amid complacent markets, says Richardson GMP wealth manager
Brexit, protectionism projected to hurt global economies
