Asset management giant recommends diversification away from the US – Interest rates are an attractive alternative to stocks

Asset management giant Pimco considers international diversification and fixed-income investments an attractive alternative to American stocks. This is clear from the asset manager’s opinion published in January. Pimco itself specializes in active fixed income investments.

The company says in the report that the interest income is attractive and that active interest investments are able to compete with the highly valued stock market.

Pimco also encourages broad international diversification. According to the asset manager, American stocks are expensive in terms of valuation, both compared to competing markets and compared to their history.

“It is important to note that this administration is quite difficult to predict. What do we do about it? We are in a multi-year cycle where we diversify away from US asset classes,” Pimco’s investment director Dan Ivascyn told In an interview with the Financial Times.

The widespread rise of artificial intelligence to the number one driver of the market has led to a market of winners and losers, where the companies that utilize artificial intelligence have been the biggest winners.

In the asset manager’s report, the market is still praised as sustainable, even though there has been a lot of uncertainty in the past year, especially regarding customs.

Scattering

The shares have produced excellent returns in recent years. The world’s most followed stock index, the S&P 500, has returned approximately 16, 23 and 24 percent in the last three years.

Pimco considers fixed-income investments to be advantageous, especially compared to American stocks, because, in their view, expectations of continued economic growth have already been priced into the stock market.

The asset manager points out that despite the lowering of the interest rate, the interest rate on the 10-year US government bond is still 4.19 percent. Also, for example, the interest rate on the 10-year government bond of Australia and Britain is over 4 percent.

For this reason, Pimco recommends diversifying into different economic areas where monetary and interest policy “take different paths”.

“In recent decades, ample capital, low interest rates and a stable world order reduced the need for diversification. Today’s situation is the opposite, it is defined by mutual risk and the different speeds of different economic regions. This creates investment opportunities for a wide range of targets,” the report says.

Monetary policy diverging

Globally, inflation has mainly been brought under control. Accordingly, Pimco expects the majority of central banks to reach neutral interest rates by the end of 2026. For other central banks, such as the central banks of the United States, China and England, this would mean aggressive interest rate cuts in the year that started.

Two reductions to the three percent interest rate level are expected from the Fed, the central bank of the United States. This can be significantly affected by the fact that the election of the new Fed chief is slipping away Jerome Powell instead and how much Donald Trump’s the administration is able to influence the central bank’s monetary policy.

Elsewhere, the work of central banks is easier. The European Central Bank ECB has reached its desired inflation level of around two percent, and the key interest rate has been lowered to two percent. Instead, for example, the Bank of Japan is expected to raise interest rates.