market folly

PIMCO's bond vigilante in chief, Bill Gross, is out with some pertinent commentary addressing how investors can generate returns in a low yield environment while still keeping risk reduced.

Given that the Federal Reserve has signaled they'll keep rates low until mid-2013, Gross lays out a playbook in his April investment outlook entitled, The Great Escape: Delivering in a Delevering World.

Bill Gross' Advice

"When interest rates cannot be dramatically lowered further or risk spreads significantly compressed, the momentum begins to shift, not necessarily suddenly, but gradually - yields moving mildly higher and spreads stabilizing or moving slightly wider..

In such a mildly reflating world, unless you want to earn an inflation-adjusted return of minus 2%-3% as offered by Treasury bills, then you must take risk in some form.

We favor high quality, shorter duration and inflation-protected bonds; dividend paying stocks with a preference for developing over developed markets; and inflation-sensitive, supply-constrained commodity products" (emphasis ours).


Gross then goes on to break down specific plays in each asset class, writing:

"For bond markets: favor higher quality, shorter duration and inflation protected assets

For stocks: favor developing vs. developed. Favor shorter durations here too, which means consistent dividend paying as opposed to growth stocks.

For commodities: favor inflation sensitive, supply constrained products.

And for all asset categories: be wary of levered hedge strategies that promise double-digit returns that are difficult in a delevering world."


Bill Gross' entire April market commentary is embedded below:




If you missed his last note, we've also posted up Bill Gross' investment outlook: defense.

For a somewhat related macro/econ post, head to Bridgewater's Ray Dalio on deleveragings.