PIMCO: Comments on Asset Allocation by Geraldine Sundstrom

PIMCO: Comments on Asset Allocation by Geraldine Sundstrom

Asset Allocatie
Asset allocatie (01)

Geraldine Sundstrom, Portfolio Manager at PIMCO, explains which stocks (from which sectors) she will focus on over the next 12 months and what she expects to happen. She also discusses the expected policy of central banks worldwide.

What is your vision of the markets for the second half of 2021?

At a high level, we hold a positive outlook for equities and are positioned for continued economic growth as we move past the early stages and into the middle part of this cycle. While the outlook is not without risks, strong policy support, economic reopening, improving macro and corporate fundamentals and high levels of innovation and technological adoption should keep markets well supported through the second half of this year.

Do you fear the announcement of a rapid tightening of the central banks? As early as Jackson Hole?

Though some central banks have begun tapering asset purchase programs already in 2021, with others likely to follow, we do not expect any developed market central banks to hike rates over our cyclical horizon (the next six-12 months). In terms of asset purchases, some central banks have already moved towards policy normalization by tapering asset purchases.

In the U.S., the Federal Reserve in June indicated its intent to begin discussing tapering asset purchases at upcoming meetings, this could materialize in September, but we view December as more likely. Importantly, we expect the removal of policy support to be gradual and while this will be a drag on economic growth, we expect GDP growth to remain positive and above-trend into 2022.

What is the philosophy of the fund you manage?

The fund's philosophy is based on three core pillars: Agility, Breadth, and Downside Awareness. Breadth means the ability to invest broadly across different markets to mix in opportunities around the globe and across different asset classes. Agility is the discretion and process to exploit those opportunities. The reason is that risk and opportunity are not static and hence a portfolio shouldn’t be either. In terms of downside awareness, the fund operates with a dual mandate, capital growth and downside protection.

We balance these objectives by fully utilizing our breadth, in terms of diversification, and our agility through dynamic asset allocation. Too often in multi-asset portfolios, managers overly prioritize one over the other. Being overly focused on downside protection and failing to capture upside, or capturing upside but exposing investors to large drawdowns when equity markets fall, as we saw in Q1 2020. The PIMCO GIS Dynamic Multi-Asset Fund in contrast is designed to be flexible across market environments.

What are your main lines of business today? What stocks have you recently bought and why? 

The current environment is one in which targeted exposure to companies and sectors that stand to benefit from secular growth drivers will outperform the broader market, as the ongoing shift to a greener and digital economy drives divergence across sectors and regions.

Today, we focus equity risk in three key areas. The first is sectors positioned to benefit from secular growth trends like digitalization and the sustainability revolution. The second is high-quality companies, mainly across the technology and healthcare sectors. And the third is companies that can benefit from a more inflationary environment, these are companies with significant barriers to entry and strong pricing power that can harvest inflation through price increases.

As always, we look to balance conviction with diversification and maintain a portfolio positioned to generate capital growth but equally be balanced in terms of overall risk and asset class exposure.