PIMCO’s Mihir Worah has championed developed market equity and financial credits as two of his top allocation decisions to generate alpha in a world of low, long-term rates.
In a series of short investor updates, Worah, who is chief investment officer for asset allocation and real return at the US asset manager, named equity and credit as two overweights in his current outlook.
Worah, who is also a named portfolio manager across several funds, said he was underweight global rates due to the belief the Federal Reserve will enact a 2015 rate rise. However, while rates are low, he sees opportunities.
‘We are generally constructive on equities in a world where the long-term interest rates stay low and the business cycle continues and you don’t see a recession. Equities should outperform other asset class, so we are generally bullish,’ he said.
‘That said, many markets are already pricing in a "new neutral" hypothesis, so you have got to look for value. Some sectors that we like in the developed markets we like European and Japanese equities, the economies and picking up and earnings are picking up for corporations from rock bottom levels.
‘In the EMs, we like to invest in China and India, where the central banks are cutting rates, lower commodity prices helping importers and huge government reforms which help corporations.’
Meanwhile, Worah was equally as upbeat on credit and said he will retain strong exposure here, with a particular emphasis on financial bonds.
‘If long-term rates stay low and the business cycle continues to expand, you are supposed to own the credit risk. We think the credit spread, the compensation you get for investing in risky bonds or corporate bonds is not much tighter than it has been on average.
‘So overall, we are constructive on credit and corporate bonds, a sector we like is, for example, financials. Where banks have recapitalised heavily and we think the spate of regulation against banks is coming to an end and also rising interest rates may support the interest margins in banks,’ he said.
In the multi-asset fund at present, Worah has 51% of the fund exposed to developed market equities, while 31% is in developed market bonds. While he is constructive on both Japan and Europe, US equities account for the bulk of his stock holdings.
The PIMCO GIS Global Multi-Asset fund returned 11.93% in US dollar terms over the 18 months since Worah was named as lead manager. Its Citywire-assigned benchmark, the LCI Mixed Asset USD Bal – Global rose 5.53% over the same period.