Investors caught between fears of the future and wanting to catch the gains of the present should try to use a "safe-risk spread" that guards against the lingering potential of an economic double-dip, Pimco's Mohamed El-Erian said.
El-Erian said his firm, which runs the largest bond fund in the world, is in the midst of a two-week process exploring opportunities that would capitalize on finding the best spreads for risk.
He said the strategy will be increasingly important as global economies grow faster than in the US and political uncertainty reins over domestic capital markets.
"We've got to recognize that policy's becoming increasingly ineffective, that we are in uncharted waters. But we also have to recognize that we can't leave the economy just to itself and go into double-dip," he said.
"The key issue is going to be...what happens in other parts of the world. The rest of the world is healthier," El-Erian added. "If the rest of the world can not only continue to grow but can start lifting us up more, then we would reduce that (double-dip) probability."
Richard Berner, chief economist at Morgan Stanley, speaking in the same interview said his firm is employing a similar strategy, in particular buying high-yield corporate debt because "risk-reward in high-yield debt has been attractive."
The risk of a double-dip is not the most likely, or base-case, scenario but still has a 25 percent chance of happening, El-Erian said.
But Berner said he thinks the chance of a double-dip is even less as some of the cyclical changes in the economy are blunting the structural issues that led to the initial recession.
"Right now I think the cyclical forces are starting to get a little bit of the upper hand," he said. "They're obviously not in the driver's seat but they're starting to come back. Global growth is strong and that's going to provide a measure of support to the US economy."