Stay underweight small caps, rates likely to remain high, says PIMCO's Erin Browne

Down on track for its longest winning streak of the year now, Pimco’s Aaron Brown is out today with her new asset allocation Outlook joins me now for an exclusive interview. Welcome back. It’s nice to see you. Nice to be here. One thing that jumps out to me, I guess is you, you told this way. You told our producers you’re modestly overweight equities. That sounds like a, dare I say, modest drop down from where you were before. Am I right or wrong? No. So we’re still I would say our positioning really hasn’t changed within equities in terms of the aggregate length. I would say on a scale of of -10 to +10 we’re a 5 out of 10. So that’s still pretty bullish equities relative to you know where we’ve been that I think remains consistent, but we are broadening the lens in terms of our exposures outside of just AI tech into a much broader diversified set of assets that we now like within equities. OK. So so you were believer and a big one in the in the broadening story. So if you’re, if you’re moving to diversify away from tech, where are you diversifying into? Yeah, so a couple of things. First, you’re really starting to see a change and a turn in the global PM is so you’re starting to see manufacturing growth bounce back up. Not only are you seeing that, but you’re starting to see export orders from our largest trading partners also start to pivot more positively. And even incrementally some of the data out of China is coming out a little bit better. So I think you now can start to look at much more aggressively at cyclicals that have been in an earnings recession over the last six quarters and starting to look at manufacturing cyclicals, industrials and even some emerging markets that are going to take advantage of global growth bottoming out and starting to rebound you know into more positive territory. Now that’s interesting to hear it, it sounds like your strategy may be more bullish than your to the degree to, I mean if you if you want to be modestly overweight equities and let’s say you’re 5 out of 10, you just painted a pretty bullish picture to me. What what, what’s missing? Yeah, I think so I think that you still want to stay underweight the small caps, I think that that sector is going to continue to be Hanford by very high rates which are going to come down slower than probably even the markets expecting. We’re expecting you know probably one hike, one’s cut rather at this this year and fairly modest shallow hiking cycle, cutting cycle rather next year as well. So I think our estimate is that at least within the US that small caps are going to continued to be Hanford by you know very restrictive rates. I also think that you know, as you start to see this broadening out of leadership within the market, certain sectors that are still leveraged to high rates, I think are going to continue to underperform. So a little bit less optimistic, some of the more defensive sectors in the economy and starting to look both at a barbell approach, being long AI and AI winners on one hand and then on the other hand getting longer cyclical risk in the portfolios and starting to incrementally add back some emerging market risk as well.