With the potential for higher inflation and increased inflationary expectations when President-elect Donald Trump takes office, investors should allocate their assets appropriately, Pimco's Mark Kiesel told CNBC on Monday.
"We are going to see likely growth pick up a little bit, with inflation. That will allow the Fed to raise rates and as a result we should see dollar strength," he said in an interview with "Power Lunch."
Therefore, he would favor dollar assets, shortened duration fixed income assets and own more Treasury inflation-protected securities, which will benefit when inflation rises.
Kiesel, global head of corporate bond portfolio management at Pimco, specifically likes mortgage securities since housing is still doing well and believes "Trump volatility" has created opportunities in fixed income in emerging markets.
His top emerging market pick is Brazil. While the country's fixed income market has already performed strongly this year, Kiesel thinks there is more upside because Brazil has changed over the last year.
"They are implementing reforms and I think above all I think they realize to attract investment they are going to have to become more market friendly and as a result we're going to see this inflation rate come down pretty aggressively."
Meanwhile, the U.S. stock market has been rallying since Trump's win, and Kiesel believes it can continue thanks to the "huge rotation" from deflation hedges, like fixed income, into reflationary hedges, like equities.
There has already been a big move from bonds to stocks since Trump's stunning victory Nov. 8. The week of the election, bond funds saw $18 billion in outflows, the biggest move in 3 ½ years, according to Bank of America Merrill Lynch. Meanwhile, stock-based funds took in $28 billion, the largest inflow in two years.
Kiesel thinks financials and energy stocks should be winners thanks to moderately higher interest rates, and he said consumer-oriented sectors will benefit from Trump's expected tax cuts.
— CNBC's Jeff Cox contributed to this report.