Mohamed El-Erian, who popularized the “new normal” term to describe Pacific Investment Management Co.’s view that the global economy has entered of period of slower growth and lower investment returns, said the scenario isn’t such a sure bet.
The likelihood of a new normal outcome is 55 percent, according to the chief executive officer of the Newport Beach, California-based company, who highlighted the term in a 2008 book.
“It is our base case, but it’s not our dominant case,” El-Erian, co-chief investment officer of the firm that runs the world’s biggest bond fund, said in an interview on “Bloomberg Surveillance” with Tom Keene.
“We are looking at a world where there are many possible outcomes. It’s no longer like the old days when we can be confident in just one outcome.”
El-Erian, 52, described new normal in his book, “When Markets Collide: Investment Strategies for the Age of Global Economic Change.” He said investors should expect lower-than- average historical returns with heightened regulation, lower consumption, slower growth and a shrinking global role for the U.S. economy.
“The new normal goes out about three to five years,” El- Erian said. Investors should expect four to six percent returns on average and gains will come in a “volatile” fashion, he said.
The worst recession since the 1930s ended in June 2009, the National Bureau of Economic Research’s Business Cycle Dating Committee said on Sept. 20. At the same time, the panel “did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity,” according to a statement.
As part of adjusting to a new normal, Pimco began offering equity funds to investors in April, and had inflows of about $1 billion from since that time, El-Erian said on Sept. 10. The firm moved into stocks to allow customers to diversify their holdings as the global economy changes and areas such as emerging markets outperform developed regions.
Pimco’s $252 billion Total Return Fund handed investors a gain of about 11.87 percent in the past year, beating roughly 76 percent of its peers, according to data compiled by Bloomberg. Pimco, a unit of Munich-based insurer Allianz SE, managed $1.1 trillion of assets as of June 30.
Treasuries have returned 8.8 percent this year, according to Bank of America Merrill Lynch indexes. The Standard & Poor’s 500 Index has climbed 6.2 percent this year.
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