One Man’s Opinion: Can US Credit Markets Provide Equity-Like Returns With Less Volatility?


There’s a lot of uncertainty right now with what’s happening with Clinton and Trump and who the Republican nominee would be, which is going to play out over time, said Mark Kiesel, Chief Investment Officer – Global Credit at PIMCO.

Right now PIMCO is focused on big opportunities in the credit market where it sees equity returns with lot less volatility than equities. Given the political risks, PIMCO thinks bonds, particularly corporate bonds are the best place to be, he noted.

Asked if corporate bonds are overall the best place to be irrespective of whether Clinton or Trump wins, Mark said there would certainly be winners and losers among the different industry sectors depending upon whether a Democrat or a Republican wins.

But the reason why bonds are so attractive today is that 75 percent of the government bond market in Japan and Germany are offering negative yields while equities face severe headwinds with global growth worries and the strong US dollar.

Credit is offering 4-8 percent returns in this world of very low rates on one hand and very risky on the other. So credit is the sweet spot for investors today, he explained.

Asked what kind of quality investors should focus on to get 4-8 percent return; i.e. if they should buy junk bonds or they can stay in investment-grade corporate bonds, Mark said investors can today build a 50-50 portfolio with half the amount allocated in investment-grade and the other half in high-yield/junk bonds.

Investors don’t even have to buy CCC or B-rated high-yield bonds; they can buy companies that are BB-rated that PIMCO thinks are trending up to investment grade and have the potential to deliver 8-10 percent returns.

The fact is that there is a huge disconnect between economic and company fundamentals, and what the markets are pricing in. That creates a huge opportunity; there are numerous companies out there focused on consumers, housing and healthcare and those companies are actually improving.

You can watch the video here.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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