The Trump administration and the Republican-controlled Congress are unlikely to produce sweeping tax or regulatory reform, according to Dan Ivascyn, global chief investment officer for Pacific Investment Management Co. Infrastructure spending will also be muted, he said.
“You'll probably get some tax reform and it will more likely resemble a tax cut as opposed to broad-based reform,” Mr. Ivascyn said Wednesday at the Bloomberg Invest New York summit. Tax changes will likely be “well pared down by what's been proposed” because Congress will be focused on revenue, he said.
With infrastructure, “we're even more pessimistic,” he said. “There may be something done symbolically, but it's going to be a lot smaller than the $1 trillion that's been mentioned.”
The fund manager — whose $85.8 billion PIMCO Income Fund has outperformed 99% of its Bloomberg peers over the past three and five years — also said investors' return assumptions need to come down. U.S. growth will likely be in the mid-2% range and, given the current global fiscal and geopolitical risks, the 10-year Treasury could fall as low as 1.5%, he said.
“Yields can go very low, certainly 1.5%,” Mr. Ivascyn said in an interview taped for Bloomberg TV. “There absolutely are scenarios where U.S. yields can go well below 2% — any type of shock to the global economy, any type of geopolitical event that leads to deflationary fears returning.”
U.S. 10-year Treasuries were trading at 2.18% Wednesday, down from a high of 2.63% on March 13.
PIMCO is betting that its style of active management can attract new money as it consistently outperforms lower-fee passive funds, which have been gaining market share. U.S. investors moved $429 billion to passive funds while pulling $326 billion from active funds in 2016, according to a report last month by Morningstar Inc.
The PIMCO Income Fund, which Mr. Ivascyn co-manages with Alfred Murata, had more net inflows over the 16 months through April than any actively managed mutual fund, according to Bloomberg estimates. Redemptions at other firm funds, including PIMCO Total Return, have abated or reversed course as performance improved under MR. Ivascyn's guidance.
Investors have become too complacent amid steady gains in asset prices and should consider taking profits to set aside cash for buying opportunities during a market correction, according to a May 31 PIMCO report on the outlook for the next three to five years. There's a 70% chance of a recession within five years, according to PIMCO's forecast.
