In an era of historically low interest rates advisors will want to note the new direction of the bond investing giant.
The world's largest bond investment firm, Pacific Investment Management Co. released a new outlook document on the future of bonds. In an era when conservatively invested clients are struggling with their portfolio returns, understanding the thinking of Pimco is key.
This week Wealth Professional spoke to Barry Dennis, the principal of Dennis Financial, an advisor firm in New Brunswick. He talked about the problems his conservative, bond-heavy investors are having in this era of ultra-low rates.
“The ones who have gone to market have done okay. But those who didn’t take any risk, they’re falling behind,” says Dennis. “KYC. You have to do what they say. But I worry about my clients.”
According to the new bond outlook from Pimco, the troubles are with us for a while yet. In the outlook document Pimco introduces a new phrase, the "new neutral", a phrase that purports to describe a new coming era in which bond yields are going to be low.
According to the report produced in the wake of that meeting the years ahead will be characterized by global growth that converges toward "lower, more stable speeds." The big brains at Pimco believe interest rates will remain stuck below their pre-crisis equilibrium and that, in terms of asset performance, "nothing does really well" in markets going forward. Fundamental research, rather than broad macroeconomic calls, will be most important. A bond market that is pricing a Fed funds rate of three percent to four percent in the next three or four years is wrong--Pimco thinks a rate closer to 2 percent, or zero percent after adjusting for inflation will mark the way forward.
The Pimco report also suggests the company will invest toward the front end of the yield curve, buying bonds maturing in five to seven years, and will focus on high-yield bonds and risk assets, "which will be not high-returning but basically stable and low-risk and low-volatility."
This week Wealth Professional spoke to Barry Dennis, the principal of Dennis Financial, an advisor firm in New Brunswick. He talked about the problems his conservative, bond-heavy investors are having in this era of ultra-low rates.
“The ones who have gone to market have done okay. But those who didn’t take any risk, they’re falling behind,” says Dennis. “KYC. You have to do what they say. But I worry about my clients.”
According to the new bond outlook from Pimco, the troubles are with us for a while yet. In the outlook document Pimco introduces a new phrase, the "new neutral", a phrase that purports to describe a new coming era in which bond yields are going to be low.
According to the report produced in the wake of that meeting the years ahead will be characterized by global growth that converges toward "lower, more stable speeds." The big brains at Pimco believe interest rates will remain stuck below their pre-crisis equilibrium and that, in terms of asset performance, "nothing does really well" in markets going forward. Fundamental research, rather than broad macroeconomic calls, will be most important. A bond market that is pricing a Fed funds rate of three percent to four percent in the next three or four years is wrong--Pimco thinks a rate closer to 2 percent, or zero percent after adjusting for inflation will mark the way forward.
The Pimco report also suggests the company will invest toward the front end of the yield curve, buying bonds maturing in five to seven years, and will focus on high-yield bonds and risk assets, "which will be not high-returning but basically stable and low-risk and low-volatility."
