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Pimco bond strategy: ‘Assets that’ll bend but not break’

The bond management firm is shopping in 'every aisle of the $100-trillion global supermarket of bonds.'

Tony Crescenzi
Adam Jeffery | CNBC
Tony Crescenzi

With markets gyrating after seemingly every poll out of the United Kingdom, investors face a tough week trying to position themselves ahead of that country's vote on whether to leave the European Union.

But global bond management firm Pimco is using precisely this opportunity to shop in "every aisle of the $100-trillion global supermarket of bonds."

Pimco expects low rates to remain the major theme for the rest of the decade, thanks to dovish central banks around the world. That said, Tony Crescenzi, Pimco's market strategist and author of "The Strategic Bond Investor," has a few portfolio recommendations.

"You need assets that'll bend but not break," Crescenzi said.

Pimco's investment thesis is driven by three goals — preserve capital, actively look for higher-yield opportunities around the world and hedge yourself if things go well.

That translates into looking for bonds that are termed "senior," which allow holders first dibs on assets if things go south. Shop for well-priced global bonds that offer higher yields because of illiquidity risks. And protect your investments in the event the economy grows faster and drives inflation by adding inflation-protected securities to your bond investment mix. Those bond offerings, though low yielding, prevent rising inflation from eating into the value of your principal and coupon payments and thus act as a good hedge should times get better.

Within the consumer and housing-related credit sectors, it's the banking, airlines, health care, and pharmaceuticals that are likely to fare well, according to Pimco.

However, economic growth continues to be the one thing that investors look to for confidently holding onto investments. On that front, Pimco expects a sub-par yet above-stall-speed rate of economic growth.

Crescenzi said he expects at least one more interest-rate hike from the Federal Reserve this year: "September for now seems the most reasonable date, but the stars could align for a hike in July — everything would have to go right."

Active investors looking for ways to get yield on their investments can continue to look for potential mergers and acquisitions. Fewer opportunities for organic economic growth, a general desire to compete by getting bigger, and low interest rates mean the recent spate of recent M&A activity will likely continue, Crescenzi said.