Pimco, the bond fund management firm led by Mohamed El-Erian and Bill Gross, is taking a crack at stocks and alternative assets.

The duo expects subpar economic growth in the United States and Europe during the next few years, thanks to governments’ exploding debt burdens. They’ve dubbed this scenario the “new normal.”

The paltry returns available in bonds will send investors to other assets, El-Erian says. So Pimco has started a stock mutual fund and a division to invest in hedge funds, real estate and buyout funds.

“We are living through a remarkable time of change,” El-Erian told Bloomberg Markets. “We want to make sure we navigate the changes for our clients.”

Gross agrees. He sees investors shunning Treasuries in favor of junk bonds, stocks and ultimately real estate.

“Over the long term, stocks return more than bonds when appropriately priced at the beginning of an investment period,” he told Bloomberg.

Pimco is entering the equity arena at an uncertain time in the market. Many individual investors are turning away from stocks amid concern about the market’s volatility and the sovereign debt crisis.

Stock mutual funds have seen net outflows since May.

"We have gone through two of the worst bear markets since the Great Depression, and it has given investors a better sense of the risks and dangers of investing (in stocks)," Brian Reid, chief economist of the Investment Company Institute, told The Wall Street Journal.