Volatility Is the New Normal: Pimco
Assistant Editor, CNBC.com
Equities are an "attractive" option for investors willing to be patient and prepared to invest for at least three years, Neel Kashkari, head of global investment equities at PIMCO told CNBC.
"Volatility is part of the new normal, it's here to stay, it's been with us for a few years. It's certainly going to be with us for the next few years and so investors need to have a long term horizon if they want to invest in equities right now," Kashkari said.
"If someone is saving to buy a house in six months, they shouldn't be investing in equities because it's almost impossible to time short term swings in the equity markets… we think equity fundamentals are attractive for long term investors, those who are prepared to invest for three, five, even longer maybe even ten years," he added.
Kashkari said as well as investing for the long term, an effective investment strategy was to go global rather than invest in a particular sector or region, which PIMCO does with around $1.3 trillion of assets.
"We don't invest by an individual sector or even by an individual region, all of our equity strategies are global so we can go all over the world looking for the best underpriced stocks, the best opportunities wherever they are and that may change week to week or month to month," Kashkari said.
"Today we are seeing good value in America, especially large cap companies that are exporting to higher growth markets… take Microsoft as an example, such as Pfizer , very low (price-to-earnings ratios), very attractive dividend yields," he added.
Where is the Value?
Kashkari said equities offer returns on three measures, including entry point valuation, earnings growth and dividend yield.
Pointing to the S&P, where one third of earnings are driven by business outside of the United States, Kashkari said PIMCO looked to firms taking advantage of high growth markets in Latin America, Asia and Africa.
"We're seeing high dividend yields in the US of around two and a quarter percent, in the emerging markets of closer to three percent and we believe corporations can continue to show strong earnings by continuing to export to higher growth markets, so on all three measures: entry point valuation, earnings growth and dividend yield, we think equities are attractive for long term investors who can stomach the volatility."
"Trying to invest in equities by trying to predict short term movement in the markets based on political actions that are unpredictable in Europe and in America, that's almost certainly a losing strategy," Kashkari stressed.
"Slower Western economic growth doesn't mean that corporate earnings are doomed. It means you have to pick the right corporations which are positioned to win in those growing marketplaces," he added.