Income Strategy Update: Sifting Global Change for Investment Opportunities


  • With PIMCO’s Secular Outlook as a guidepost, we are taking a more cautious and defensive approach in the Income Strategy while remaining poised to take advantage of market overshoots.
  • We are maximizing the strategy’s flexibility, which includes increasing liquidity and diversification; unless we see a meaningful shift in market valuations, we plan to continue using diversification to temper volatility.
  • Our short-term view on the economy is constructive, and we therefore expect the Federal Reserve to continue gradually raising interest rates. As a result, we are taking a cautious approach to interest rate exposure.
  • The Income Strategy has the tools to be resilient in the face of rising interest rates, including broad flexibility to manage interest rate exposure and to allocate across sectors that may have less sensitivity to rates.

Politics, trade tensions and rising interest rates have all contributed to higher market volatility over the first half of 2018. The portfolio management team for the PIMCO Income Strategy, Group CIO Daniel Ivascyn and Managing Director Alfred Murata, discuss how they are positioning the Income Strategy for both upside potential and downside risk in a more volatile market.

Q: PIMCO’s latest Secular Outlook forecasts a new era of potentially radical change − and some “Rude Awakenings” for investors. How does this outlook affect the positioning of the Income Strategy?

Ivascyn: We think the next five years are likely to be very different from the post-crisis period of the last 10 years.

Since the financial crisis, PIMCO has characterized the macro environment as the “New Normal” or “The New Neutral” − a period of low growth, significant disinflationary pressure and relatively low volatility.

Now, the major central banks are trying to step away from the accommodation that they have provided to the markets for many years, and their influence is being quickly replaced by that of politics. Populist parties, for example, have already gained traction across the globe.