0. The New Neutral™ PIMCO 2014 Secular Outlook June 2014
PIMCO Investments LLC
June 2014

1. Secular Forum
“We’ve learned over the years that the Forum provides us with a concept, a construct and a compass to deliver consistent value for our clients over a wide range of economic conditions and market fundamentals.”
Rich Clarida, Executive Vice President, Global Strategic Advisor
Annual meeting to discuss and debate the evolving investment landscape
Investment professionals from PIMCO’s 13 global offices plus invited guest speakers
Three days of discussion and debate
3–5 year outlook on macro trends and the implications for investors

2. Invited speakers provided fresh perspectives

3. PIMCO’s 2014 secular outlook
Slow and stable global growth
Global economy will deliver slower but increasingly stable growth and experience low inflation.
Multi-speed country growth
Countries will continue to grow at varying speeds but rates will converge. For example, U.S. growth will accelerate while growth in China and the rest of EM will slow.
Persistently low policy rates
Record high global debt and slower growth will constrain central bankers, keeping policy rates below historical averages (2% nominal will be the New Neutral rate in the U.S.).
Shifting risk/return profile
Major market returns will be lower (5% for stocks, 3% for bonds with the 10-year Treasury between 2.5% and 4%) but so will downside risk and the potential for market bubbles.
Refer to the Appendix for additional forecast, outlook and risk information.

4. Multi-speed world – growth rates converging
Secular Forecast:
Growth
Policy
U.S.
Most potential for upside surprise
New Neutral: 2% nominal rate
Europe
1.25%
Low rates/Possibly major QE program
China
6.0%–6.5%
Shadow banking presents risk/Monetary policy must remain accommodative
Refer to the Appendix for additional forecast and risk information.

5. Global debt at all-time high
Source: BIS as of 31 March 2013

6. “The New Neutral:” PIMCO’s secular forecast
* Neutral Rate = The expected Fed Funds Rate when GDP, inflation, and employment are stable, and monetary policymakers are neither "easing" nor “tightening.”
** Assuming 2% inflation
Refer to the Appendix for additional forecast information.

7. PIMCO’s 2014 secular outlook: investment implications
Maintain diversification
In a low rate environment, bonds will continue to be a natural diversifier for equity risk.
Be selective
Favor active managers who employ bottom-up research to identify countries, sectors and companies growing faster than the economy.
Think outside the box
Go beyond traditional asset classes to boost return potential, including unconstrained and alternative asset strategies.
Take calculated risk
Downside risk is lower than many investors expect, suggesting that yields, credit spreads and P/E ratios may not be overvalued.
Look to mispriced markets
Pursue opportunities in mispriced sovereign bond markets (where the market has overestimated rate hikes).
Refer to the Appendix for additional forecast, outlook and risk information.

8. What opportunities exist in The New Neutral?

9. Appendix
Past performance is not a guarantee or a reliable indicator of future results.
FORECAST
Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.
OUTLOOK
Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.
RISK
All investments contain risk and may lose value. Absolute return portfolios may not fully participate in strong positive market rallies. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Mortgage and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market’s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee there is no assurance that private guarantors will meet their obligations. High-yield, lower-rated, securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. Diversification does not ensure against loss.   
This material contains the current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO and YOUR GLOBAL INVESTMENT AUTHORITY are trademarks or registered trademarks of Allianz Asset Management of America L.P. and Pacific Investment Management Company LLC, respectively, in the United States and throughout the world. © 2014 PIMCO
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