Tags: Pimco | Investment | Returns | Flat

Pimco: Investment Returns Will Turn Flat

By Dan Weil   |   Monday, 02 Aug 2010 08:53 AM

Investment returns overall will be modest in coming months, as we enter the new normal of subpar economic growth, says Pimco global strategist Richard Clarida.

But the deviations up and down will be huge, he says.

“We are in a New Normal world in which the distribution of outcomes is flatter and the tails are fatter,” is how he put it on Pimco’s website. A tail refers to an outsized move in a market.

The fact that these outsized moves will be bigger makes it important for investors to be on the winning side.

But, “Getting the tails right will be easier said than done,” Clarida wrote. That’s because traditional rules won’t work in this environment. For example, a V-shaped recovery hasn’t followed the U.S. recession.

In addition, fluctuations in risk appetite will be extreme amid fear of losses, Clarida says.

The risk of big losses also will discourage excessive borrowing. “Successful investment strategies in a New Normal world will generally be less levered than during the Great Moderation — roughly 1987-2007,” he wrote.

Janet Briaud, CEO of Briaud Financial Advisors, tells Moneynews the key factor to remember in this investment environment is that you’re trying to beat inflation by 3 percentage points.

So with core inflation, which excludes food and energy prices, running at a 0.9 percent rate now, you need only a 4 percent return. On that basis, Treasuries and munis offer good value, she says.

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Investment returns overall will be modest in coming months, as we enter the new normal of subpar economic growth, says Pimco global strategist Richard Clarida. But the deviations up and down will be huge, he says. We are in a New Normal world in which the distribution of...
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