This is a sponsored article from PIMCO.

Discover how a disciplined 60/40 framework, backed by systematic equity strategies, can help multi-asset portfolios thrive in unpredictable markets.

Against a backdrop of policy shifts, geopolitical tension, and uneven growth, investors face a familiar challenge: building resilient portfolios without missing opportunities. PIMCO’s asset allocation outlook emphasises balance — across asset classes, regions, and risk factors — as a prudent way to navigate uncertainty and build durable portfolios.

While headlines on macro risks fuel short-term volatility, we believe long-term success hinges less on prediction and more on preparation. A disciplined, diversified allocation — such as the classic 60/40 mix of equities and fixed income — remains a powerful tool to counteract behavioural biases and foster more consistent outcomes.

Equities: Favouring quality and global diversification

Equity markets have seen wide dispersion in performance, driven by sector rotation, earnings surprises, and policy developments. Our outlook favours diversified, global exposure across regions and sectors. Systematic equity strategies built around value, quality, momentum, and growth remain central to our approach. These factors have historically delivered excess returns across cycles and can help portfolios weather volatility.

Consider two US technology sector companies (see Figure 1). Company A has a strong balance sheet, is domestically focused, trades at inexpensive valuations, and saw growth upgrades and prompt momentum recovery after the US tariff announcements. Company B had expensive valuations and more international exposure, so its growth forecasts and momentum suffered in an uncertain trade environment.

Figure 1: PIMCO equity factor scores – two illustrative examples from 2025

This quantitative approach serves to manage the risks of behavioural bias and emotion, setting up the discipline to successfully navigate various environments, including the unusual developments this year. Furthermore, our systematic process has identified opportunities in European and emerging market equities, where valuations look more attractive.

PIMCO’s globally diversified 60/40 strategy employs a systematic equity approach that blends multiple factor exposures. This approach can help avoid concentrated style risk and adapt to changing market conditions — anchoring on persistent equity factor premia and structural drivers of return linked to value, quality, momentum, and growth themes.

This 60% global equity exposure is complemented with a 40% allocation to a global, high-quality, and flexible fixed income allocation designed to generate stable, consistent income and diversify equity risk.

Fixed income: Income with flexibility

Rising yields have restored fixed income’s role as a source of both income and diversification. PIMCO’s outlook favours high-quality duration exposures, particularly in the UK and Australia, where inflation is relatively contained and fiscal dynamics are more stable.

Over the next five years, we expect high-quality bonds to deliver positive real returns and strong diversification benefits, as central banks begin or continue easing rates. Duration risk premia have risen across major developed markets, enhancing the appeal of longer-dated exposures.

Within credit, spread levels across corporate credit appear tight, so we continue to favour securitised credit, including agency mortgage-backed securities (MBS) and consumer-backed asset-backed securities (ABS), which offer more reasonable valuations, attractive yields, and resilient fundamentals.

The 40% fixed income allocation of our 60/40 strategy takes a multi-sector approach that emphasises liquidity, quality, and diversification. The portfolio maintains a modest duration overweight, focusing on intermediate maturities in the US and select developed markets. Agency MBS offers compelling spread levels and potentially strong structural protections. Exposure to non-agency MBS and ABS targets senior tranches with robust underwriting, potentially helping to mitigate credit risk while enhancing income.

Implications for investors: Stay balanced, stay global, stay disciplined

While equities continue to offer long-term growth potential, we believe fixed income is once again positioned to contribute meaningfully to portfolio returns — not just as a diversifier, but as a source of income and total return. Credit markets present a mixed picture, and we prefer to stay up in quality with an emphasis on securitised exposures.

For multi-asset portfolios, this environment calls for a measured approach: maintain broad diversification, favour high-quality exposures, and apply marginal tactical flexibility to improve risk-adjusted returns. Our 60/40 strategy embodies these principles, using modest tilts to reflect macro views while preserving its core 60/40 structure.

As investors look ahead to the next six months — and beyond — the emphasis is clear: stay balanced, stay global, and stay disciplined.

Learn more here.

 

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Important information

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. Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fees, and/or other costs. In addition, references to future results should not be construed as an estimate or promise of results that a client portfolio may achieve.

Charts are provided for illustrative purposes and are not indicative of the past or future performance of any PIMCO product References to specific investments are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. This material is provided for information purposes only and should not be considered as investment advice or a recommendation of a particular security, strategy or investment product. This material contains the opinions of the manager, and such opinions are subject to change without notice. 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 appropriate for all investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation 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.

Issued in Singapore by PIMCO Asia Pte Ltd (Registration No 199804652K). Issued in Hong Kong by PIMCO Asia Limited and this material has not been reviewed by the Securities and Futures Commission. All investments contain risks and may lose value. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world. ©2025, PIMCO.

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This is a sponsored article from PIMCO.