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  • Hi, I'm Jason Odom, an asset allocation strategist, and I'm joined today by portfolio

  • managers Erin Browne and Geraldine Sundstrom. Thank you both for joining us today.

  • Erin, to get us started, can you give us a summary of the key takeaways of the asset

  • allocation outlook? Sure. Thanks, Jason. We've moved past the

  • early cycle environment that really predominated risk taking in 2020, post the pandemic lows,

  • and we're moving really into a mid-cycle environment, which tends to be a constructive

  • environment for risk, broadly speaking. That said, we are also moving past what we

  • define as the four peaks. That's a peak in growth, a peak in inflation, peak in policy

  • support, but also importantly, a peak in the post pandemic environment.

  • And what this ultimately means is that we think from here, we're going to be moving

  • into a midcycle environment that's still going to be expansionary, albeit with slightly

  • lower growth than we've seen predominate over the last year or so, but it's still

  • a very constructive environment for risk taking more broadly.

  • Thanks, Erin. Can you expand on the implications of a mid-cycle environment for different asset

  • classes? Mid-cycle environments tend to be quite constructive,

  • as I noted, for risk taking and for growth oriented assets. What's interesting, though,

  • is that as we move into a mid-cycle environment, equities tend to be, on a risk adjusted basis,

  • the best asset class in terms of performance. Equities tend to outperform both bonds as

  • well as credit. However, there is a distinction, as we move from an early cycle environment

  • into a mid-cycle environment. In early cycle environments, beta tends to be the predominant

  • driver of returns, particularly for equities. As we move into a mid-cycle environment, we

  • tend to see a lot more dispersion, both intra-asset class as well as across asset classes. And

  • security selection and stock selection becomes much more important in terms of defining returns

  • in a mid-cycle environment than what we experienced in the very beta driven early cycle environment.

  • And as a result of that, we think that going forward, dispersion is going to be the driver

  • of returns and stock and security selection is going to be increasingly important.

  • Geraldine, moving over to you, as we move past the pandemic, PIMCO has been evaluating

  • which changes could have a lasting impact. Can you speak about some sectors that may

  • benefit from these more permanent changes? Each economic cycle is different, and as we

  • reach mid-cycle, as Erin said, we need to become a lot more selective in our security

  • selection. Therefore, we need to ask ourselves, what is different this time?

  • And certainly of late, one factor has gained incredible traction, and that has to do with

  • ESG consideration. Indeed, when thinking about the environment,

  • already 110 countries have pledged to a net zero CO2 future, and this means that we are

  • likely to see in years ahead higher demand for certain goods and materials. We could

  • also see big developments in new technology in energy production, transport, or construction.

  • Now, looking at the social consideration, a number of things have been happening. We

  • are seeing large multinational companies increasing substantially minimum wages. We are also seeing

  • efforts from government to redistribute wealth. The G7 has launched an initiative for a global

  • minimum corporate tax. This could mean that with this effort and this redistribution,

  • we could see more demand for robotics and automation, but also more consumption and

  • potentially less saving. Last but not least, there are governance considerations.

  • We are all very well acquainted with typical corporate governance. That said, there's

  • also a new angle to it, which is more of a geopolitical nature.

  • The pandemic has put forward the issues that supply chain, long supply chain, can have,

  • and there are now efforts from various governments around the world to secure key strategic goods

  • like semiconductors, batteries, or medical supply.

Hi, I'm Jason Odom, an asset allocation strategist, and I'm joined today by portfolio

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Mid-Cycle Investing: Growth-Oriented and Selective

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    洪子雯 に公開 2021 年 07 月 17 日
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