View from the Investment Committee

Balancing Risk and Return Amidst Political Uncertainty

Uncertain elections and unresolved conflicts globally have heightened geopolitical tensions and risks. Group CIO Dan Ivascyn explains why active management and careful positioning are key in today’s markets.

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Text on screen: Balancing Risk and Return Amidst Political Uncertainty

Text on screen: PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized.

Text on screen: DANIEL J. IVASCYN, Group Chief Investment Officer

The U.S. election now has become quite competitive.

It's going to lead to more volatility up until the actual election and then after the fact. So, we're keeping our portfolios more liquid, flexible, up in quality, but poised to take advantage of more volatility. We've already had some really interesting election outcomes elsewhere in the world. Venezuela jumps out as an area where, not a big investable opportunity set, but an example of political uncertainty out there. Mexico, Brazil, other parts of the world as well.

In addition to elections, there's a lot of other geopolitical tension out there. Middle East situation is far from resolved. The war in Ukraine. Frictions with China. So lots of other areas that can lead to more volatility, more uncertainty.

As an active asset manager, be careful about position sizing and implied conviction, but utilize that global opportunity set because we are in an uncertain world. And when we look at equity valuations today, when we look at some of the valuations in the lower quality areas of the private credit markets, and we even look at some of the lower quality areas of the public markets, we still think that there's some complacency there and that you can achieve returns very close to the base case yields those areas offer without taking the same amount of risk.

And that's the name of the game, is try to provide an attractive, responsible yield with meaningful downside protection, and in the process, generate strong value versus passive alternatives that are out there.

Text on screen: For more insights and information, visit pimco.com

Text on screen: PIMCO

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IMPORTANT NOTICE

Please note that this communication contains the opinions of the manager as of the date recorded, and may not have been updated to reflect real time market developments. All opinions are subject to change without notice.

Past performance is not a guarantee or a reliable indicator of future results.

All investments contain risk and may lose value. 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 low interest rate environments increase this risk. 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.

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