Bonds have ‘rarely been more compelling than equities,’ Pimco says

investmentnews.com:

Bonds are looking attractive right now and are set to be a shining light in 2024, according to a new outlook from portfolio managers at Pimco.

Erin Browne, Emmanuel Sharef, and Geraldine Sundstrom have shared their Asset Allocation Outlook with InvestmentNews and their belief that bonds have rarely been as attractive as they appear today.

“We strongly favor fixed income in multi-asset portfolios. Given current valuations and an outlook for challenging economic growth and diminishing inflation, we believe bonds have rarely appeared more compelling than equities,” the portfolio managers state.

Digging deeper, duration offers attractive value at current yields — especially medium-term U.S. — and the investment manager holds overweight allocations to U.S. bonds but also Canada, UK, Australia, and Europe. Mortgage-backed assets and select securitized bonds are in favor in the credit space.

The outlook calls for the end to rate hiking and for inflation to ease, but that does not mean that all is well with a moderate risk of recession in several developed economies.

The traditional inverse relationship between stocks and bonds is set to return, the portfolio managers believe, with the potential for contraction in some economies as fiscal support ends and monetary policies take effect after a typical lag.

With high valuations in the equities market, the portfolio managers believe that investors could be facing disappointment based on forward earnings expectations.

Given the potential for weaker-than-expected earnings in sluggish economies, and overvaluation, the outlook reflects a cautious neutral stance for equities by Pimco’s asset experts, with quality and relative value opportunities in focus.

The report says that equity