Pacific Investment Management Co.’s Daniel Ivascyn says the risk of recession is high and he sees opportunity in alternative investments.
At a briefing at a conference in Chicago, Pimco’s chief investment officer noted that the introduction of a debt ceiling standoff in a weak macro environment combined with the regional bank weakness and threat to dollar dominance means that a “recession is more likely than not.”
Recession fears have been much discussed over the past year. Adding fuel to the fire have been the results from
First Republic Bank
(ticker: FRC), which showed deposits down more than 40% renewing fears of a bank contagion. All this comes against the backdrop of a deadlock between President Joe Biden and House Speaker Kevin McCarthy on raising the U.S. borrowing cap.
“There’s a lot of economic uncertainty and risks of meaningful risk of a recession,” Ivascyn said. It makes Pimco concerned about a further reduction in risk-taking both across households and the investment community, he said.
The areas of opportunities lie within the more liquid segments of the market and in alternative strategies, according to the bond shop executive.
One example he offered was an interval fund. These are a type of closed-end funds, not listed on an exchange, that offer their shares at a price based on the fund’s net asset value. They allow shareholders to withdraw at set times and are loaded up with less liquid assets, such as private companies, derivatives, or certain debt instruments.
Ivascyn also suggested agency mortgage-backed securities, which are mortgages issued and guaranteed by the U.S. government agencies. He’s vouched for Agency mortgage-backed securities in an interview with Barron’s last year, calling them a great alternative to investment-grade corporate bonds.
“The devil will be in the details in terms of what you want to target but for fresh capital these types of directional opportunities, we believe are as attractive as they have been since the global financial crisis,” he said
Write to Karishma Vanjani at [email protected].
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