Investors in global equities are enjoying the best start to a year in at least three decades, cutting back on cash positions and plowing more money into riskier assets. However, just as many expect this bull run to last even longer than previously expected, Pacific Investment Management Co. says now is the time for caution.

“The fact that the fear is gone is the main reason why we should be worried,” Joachim Fels, a global economic adviser at Pimco, told Bloomberg TV on Wednesday from Newport Beach, California. “That means most investors are now pretty fully invested and that means they will want to get out if the markets start to correct -- exacerbating the downdraft.”

Chances are that interest rates will rise faster than many expect, pushing up government bond yields, he said. Fels also suggested inflation may tick higher, and continues to advise an overweight position on inflation-linked bonds within fixed-income portfolios. His firm has cut exposure to corporate credit, particularly high-yielding bonds, concerned that a sell-off may soon arrive, with the asset class having a high correlation to stocks.

For now, investors seem immune to such warnings. The MSCI All-Country World Index is up 4.6 percent in 2018, the best start to a year since at least 1988, according to data compiled by Bloomberg.

“We’ve seen a big rally, markets are still going higher, but this is now a time for caution,” said Fels.

Source:
courtesy of BLOOMBERG

by Adam Haigh

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