Mark Kiesel, (pictured), CIO of Global Credit at PIMCO has summarised his views on current opportunities in quality credit, specialty finance and mortgages. He writes: “As the global economy goes through significant change and a new administration takes charge in Washington, the potential for both left-tail (downside) and right-tail (upside) market outcomes has increased.
“The main left-tail scenario involves the risks of trade restrictions and protectionism, anti-immigration policies, dollar strength and an escalation of geopolitical conflicts. The right-tail scenario centres on upside potential from faster global growth driven by higher government spending, lower taxes and deregulation.
“With equity and credit markets pricing in mostly right-tail outcomes, we have been de-risking portfolios broadly across the credit markets. Given the degree of uncertainty, active investors should be in an excellent position to capitalise on market dislocations in 2017.”
Kiesel believes that there are some excellent opportunities in credit. “Compared with about a year ago, when PIMCO increased credit risk (“The Case for Credit” and “Time to Move”), we are taking less overall credit and “spread risk“ and have been shifting our portfolios into areas of the credit market where we see the most favorable risk/reward. This shift, while subtle, underscores our views on credit sectors positioned to withstand the potential changes and uncertainties in the market outlook.”
Specifically, Kiesel and his team see opportunities in high quality corporate bonds; bank capital/specialty finance; non-agency mortgages and agency mortgages.
