Mark Kiesel is a work horse. The co-chief investment officer of Pimco, the world’s largest bond investor, works from 3am to 4pm in his office in California’s Newport Beach to liaise with colleagues in time zones around the world and get a jump on the competition.
The Allianz-owned firm has been through tumultuous times. Since taking over investment decisions from legendary investor Bill Gross, Mr. Kiesel’s chief job has been to halt the outflows from Pimco’s flagship Total Return fund seen after Mr. Gross’ acrimonious departure last year. The 45-year-old Mr. Kiesel was himself shaped by working 18 years with the one-time “Bond King”, who founded the Newport Beach, California-based firm.
Mr. Kiesel’s advice is simple: Avoid bonds with negative yields. That includes German government bonds, which have recently fallen out of favor with many investors around the world. He councils the savvy investor to focus on corporates and bank loan securities, especially in the United States.
Handelsblatt: Mr. Kiesel, are you buying sovereign bonds that produce no yield at all?
Mark Kiesel: We try to avoid markets with no yields. And, given valuations and improving private sector fundamentals, we do not believe interest rates are likely to go lower.
What exactly does this mean?
At this point in the economic cycle, we rarely buy government bonds from the Western hemisphere. We do like a few countries, such as Brazil and Mexico. There, we believe that interest rates will be lower in one or two years from now, i.e. their [bond] prices should be rising.
What is the yield on such sovereign bonds?
Mexico’s government bonds with ten years duration deliver returns of six percent, the respective Brazilian bond even twelve percent.
Two years ago, you said central banks were dominating the market like never before. Since that time, things have become even more extreme. Do you see asset-price bubbles developing?
There are bubbles developing. Very few single asset classes are still cheap nowadays.
Where exactly do see the worst bubbles?
Government bond yields which are negative or near zero in several developed markets offer no protection for inflation and should be avoided, given central bank policy globally is a ‘reflationary’ policy.