PIMCO officials plan to take on more credit risk in the next three to five years, particularly in sectors where recapitalization is closing the gap with deleveraging, Mohamed El-Erian, co-CEO and co-CIO, said in question-and-answer session posted today on PIMCOs website. Mr. El-Erian warned the firm will take on credit risk cautiously. This is not the time to go from defense to offense big time; its time to go from defense to special teams, he said in the Q&A, which was released as a follow-up to Pacific Investment Management Co.s annual Secular Forum.
The firm will also be looking at high-growth areas, particularly emerging markets, he said. Mr. El-Erian also expects a period of renewed dollar weakness, though the firm wont exploit the weakness through floating currencies like the euro, as it has in the past. Rather, we will be looking to invest in currencies that are currently subject to fixed or managed regimes but likely to become more flexible over the medium term, he said.
At the forum, PIMCO develops it three- to five-year economic outlook and investment strategy. Company officials decided to look toward spread duration as a major driver of return, as opposed to interest-rate duration. This is a shift for PIMCO, which managed to avoid the credit market implosion by underweighting credit risk.