PUTTING MARKETS IN PERSPECTIVE | 1Q15

PIMCO’s process
Cyclical insights
Global
U.S.
Europe
Japan
Emerging markets
Credit
Equities
Treasuries
Benchmarks
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PIMCO’s Cyclical
Forums take place three times a year and distill extensive analysis into the market views highlighted in this presentation.
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PIMCO expects global growth to accelerate in 2015, from around 2.5% to 3.0%.
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Source: Bloomberg. Data through 31 October 2014 for Japan, all other data through 30 November 2014. *Tax-adjusted inflation.
Inflation is shown as CPI: the Consumer Price Index, which tracks a weighted average of prices for goods and services.
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Source: Bloomberg, PIMCO. Forecast is for four quarters ending Q4 2015. World is a weighted average sum of countries listed in chart above. BRIM is Brazil, Russia, India and Mexico.
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PIMCO has become slightly more optimistic about the U.S. economy, expecting real GDP growth of 2.75%–
3.25% in 2015.
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Source: Bloomberg. Data through 31 December 2014. Change in employment is U.S. employees on nonfarm payrolls total, month over month, seasonally adjusted.
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Source: U.S. Energy Information Administration. Data through 2015 (projected 2013–2015).
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We continue to focus on the ability of the ECB to deliver, forecasting similar slow growth of 0.75%–1.25% this year.
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Source: Bloomberg. Data through 30 November 2014.
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Source: Eurostat. Data through 30 September 2014.
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Central bank support and falling oil prices will contribute to
Japan’s economic recovery, leading
PIMCO to forecast
2015 growth of
1.25%–1.75%.
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Source: Bloomberg. Data as of December 2014.
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Source: Bloomberg. Data through 30 September 2014. PIMCO projections from October 2014 through December 2015.
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PIMCO is forecasting slower
EM growth in
2015, with China growing 6.0%–7.0% and the BRIM countries growing
1.5%–2.5%.
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Source: CEIC, Bloomberg, NBS. Data through Q3 2014, projections through Q3 2015.
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Source: Haver Analytics, PIMCO. Data as of January 2015.
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Global
Growth to accelerate to 3.0% in 2015
Differentiated conditions will create select opportunities.
U.S.
European
Japan
Emerging markets
Slightly more optimistic, forecasting real growth of 2.75%–3.25%
Similar slow growth of 0.75%–1.25%
Seek opportunities in nonagency mortgages and select investment grade and high yield corporate issues.
Be cautious, but consider opportunities in peripheral bonds and potential equity markets in select countries.
Central bank support and falling oil prices will contribute to growth of
1.25%–1.75%
Remain cautious about the effectiveness of BOJ policy to deliver on what are now high market expectations.
Expecting China growth of 6.0%–7.0% and BRIM growth of 1.5%–2.5%
Volatility is likely to stay elevated so investors should maintain a long-term perspective.
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Falling oil prices have created opportunities in certain high yield bond sectors, including transportation and leisure.
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Source: BofA ML U.S. High Yield Index. Data as of 31 December 2014.
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Source: BofA ML U.S. High Yield Index. Data as of 31 December 2014.
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Return opportunities in equities may be greater in regions outside the U.S. in 2015.
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Source: European earnings per share (EPS) is MSCI Europe Index. U.S. EPS is MSCI USA Index. Data through 31 December 2014.
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Source: Morgan Stanley. Data through 31 December 2014.
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PIMCO expects the
Fed to gradually raise policy interest rates in mid-2015.
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Source: Bloomberg. Data through 31 December 2014.
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Source: Bloomberg. Data through 31 December 2014.
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Active bond management is often associated with the opportunity to outperform the benchmark, but equally important today is the potential to mitigate risk.
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Source: Barclays, PIMCO. Data as of 30 November 2014.
*Government-related debt includes agency, local authority and U.S. dollar-denominated sovereign and supranational debt, from both developed and emerging markets.
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Source: Barclays, PIMCO. Data as of 30 November 2014.
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Credit
Equities
Treasuries
Benchmarks
Falling oil prices have created high yield opportunities in select sectors
Non-U.S. markets may offer more attractive opportunities
Investors comfortable with the higher risks associated with high yield bonds should focus on fundamentals.
Consider increasing non-U.S. equity exposure.
Fed will gradually raise policy interest rates in mid-2015
Government policy and direct issuance of Treasuries have resulted in more concentrated risk in the BAGG
Long-term U.S. Treasury yields will likely move higher so investors may want to consider non-U.S. sovereigns.
Favor an actively managed bond fund that seeks to mitigate risk and generate higher returns.
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Past performance is not a guarantee or a reliable indicator of future results.
FORECAST
Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fees, and/or other costs. In addition, references to future results should not be construed as an estimate or promise of results that a client portfolio may achieve.
HYPOTHETICAL EXAMPLE
Hypothetical and simulated examples have many inherent limitations and are generally prepared with the benefit of hindsight. There are frequently sharp differences between simulated results and the actual results. There are numerous factors related to the markets in general or the implementation of any specific investment strategy, which cannot be fully accounted for in the preparation of simulated results, and all of which can adversely affect actual results. No guarantee is being made that the stated results will be achieved.
INVESTMENT STRATEGY
There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors, and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.
OUTLOOK
Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.
RISK
Investing in the bond market is subject to certain risks, including market, interest rate, issuer, credit and inflation risk; investments may be worth more or less than the original cost when redeemed. Bank loans are often less liquid than other types of debt instruments. High yield, lower-rated securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations and economic and political risks, which may be enhanced in emerging markets. Commodities contain heightened risk, including market, political, regulatory and natural conditions, and may not be suitable for all investors. Diversification does not ensure against loss. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors, and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.
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Index definitions:
•
Barclays U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis. It is not possible to invest directly in an un-managed index.
• The
BofA Merrill Lynch High Yield Index is an un-managed index consisting of bonds that are issued in U.S. Domestic markets with at least one year remaining until maturity. All bonds must have a credit rating below investment grade but not in default.
• The
MSCI Europe Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets in Europe.
• The Morgan Stanley Capital International (“MSCI”) U.S. Index is a market capitalization weighted index composed of approximately 325 issues, and is generally representative of the market structure of the United States.
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This material contains the current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only. Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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