Pimco CIO Says Firm Is "Reducing Risk Across The Board"

Tyler Durden's picture

Mark Kiesel probably isn't the first name that springs to mind when Pimco's investment strategies are being discussed.  That honor, ironically, still resides with Bill Gross even though he departed the firm for Janus over 3 years ago. 

That said, as the manager of the $10.4 billion Pimco Investment Grade Corporate Bond Fund and the firm's CIO of global credit, you should probably at least take notice when Kiesel says that he expects returns on financial assets to "be much lower for the next 3-5 years" and that, as a result, he's "reducing risk across the board"...which is exactly the message he delivered on Bloomberg earlier this morning.

"We actually think over the next three to five years the returns on financial assets are going to be much lower."


"We're concerned about monetary policy eventually reversing."


"Number two, the fiscal expectations are too high in the U.S."


"And number three, we're worried about geopolitical tension."


"In general, we have been reducing risk across the board."


So where is Kiesel hiding Pimco's $10 billion of capital under his management?  Apparently, it's flowing into South America and 10-year U.S. Treasuries.  Per Bloomberg:

On the margin, Kiesel seized the opportunity to obtain deeply discounted bonds of Argentina, Brazil and Mexico with Latin America still in a slump.


Most presciently, he bucked far-fetched U.S. growth forecasts loosed by market exuberance about President Donald Trump. While many investors were tailoring strategies to an expectation of 3 percent annual growth in inflation-adjusted gross domestic product, Kiesel locked in steady long-term returns by purchasing relatively inexpensive futures contracts on 10-year Treasuries amid signs that GDP won't expand much beyond 2 percent. As a result, his fund's government-securities holding outperformed the benchmark by 56 basis points, which alone accounted for 46 percent of the fund's performance advantage over the benchmark.


The Treasury bond rally this year "is a function of declining views of inflation and growth, combined with lots of money chasing yield," said Joel Levington, the global director of fixed income for Bloomberg Intelligence. Despite the Fed's decision to raise short-term interest rates by a quarter point in March and again in June, bonds with maturities of 10 years or greater are outperforming debt securities of shorter duration, according to data compiled by Bloomberg.


Kiesel's holdings in financial-company bonds performed especially well, beating that benchmark sector by 77 basis points and accounting for 63 percent of his entire portfolio outperforming the market.


Of course, he also admitted to owning Illinois debt, so maybe take everything above with a grain of salt.

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order66's picture

So a big shift into safe havens like NQ and biotech. Got it.

xtremers9's picture

PIMCO is an asset manager. They make money by charging management fees. Hence, they dont need to be right about the market. They just need to gather AUM

Mikeyyy's picture

The way they gather AUM is to outperform their peers.  Thus, being right about the market, relatively, is important to gathering more assets.  Gross's outperformance over a multi-year period is what made their Total Return Fund so big.

knukles's picture

Man knows the business model

I am Jobe's picture

In other words no blow or hookers

CheapBastard's picture

So Wall Street execs will only buy one vacation home in the Hamptons?

Too-Big-to-Bail's picture

Setting expectations low is probably wise

Glyndwr will return's picture

Trusts US gilts. Good for now but nothing later. Later is near !

Bank_sters's picture

Gosh, I just love when these crooks tell me how they are operating.  Altruism at its best.

Vilfredo Pareto's picture

If he has become a contrary indicator like his predecessor, then Latin bonds and10 year USA  treasuries will underperform and it is time to go long USA stocks.


The contrarian's contrarian?  Lol

knukles's picture


A Contrarian's Contrarian = Consensus!

Like charging big fees for shadow indexed portfolios.  OPM is Great!  Oh let us Worship Mammon.

hola dos cola's picture

They are coming out one by one; selling. I'd guess the whole Trump rally was 'transferring risk' to the sheeple, who are now awaited at the foot of the cliff.

Vilfredo Pareto's picture

A distribution top, eh?  We will see.

hola dos cola's picture


Volatility is the answer. Preferably started of with a shock. A wake up call as doing nothing is not an option now.

Disclosure: long volatility myself

rycK's picture

Duh?! The interest rates are rising and now bond prices will fall?? Hoodathunkit??

Horse Pizzle's picture

3.5% US Treasury bonds lose half their value at 7%.

Dewey Cheatum and Howe's picture

The Fed is exposed and trapped. They know they are raising rates into a declining economy. But they also know that if they don't, yield inversion goes bat shit crazy. their crappy little moped is going into high speed wobble. At least we get to watch these fuckers faceplant

lumen ex lumine's picture

Just out of curiosity, why is the CIO giving investment advice ?

Dewey Cheatum and Howe's picture

At the end of the day, they're all in sales and thats what makes all sell siders.