If Your GDP Outlook Is Dim, Try Pimco

Investors who expect the next several years of GDP growth will be anemic at best, with an underperforming stock market to match, will find Pimco Total Return(PTTDX Quote) one of the best places to find positive returns. That also means it's a good choice for investors looking to park their fixed income allocation.

On Aug. 18, Pimco adviser Richard Clarida said he expects 2% GDP growth in the U.S. with high unemployment for some time. In his August outlook, Bill Gross says that he expects much slower GDP growth in the future.

In the readjustment process, debts take a haircut via corporate defaults and home foreclosures, and equity P/Es are cut based upon increased risk and substantially lower growth expectations. A virtuous circle of expansion turns into a vicious cycle of recession or low-growth stagnation.

Anyone following Gross' line of thinking knows what this means: Protect your capital and accept lower rates of return if it means reducing losses on assets. High-risk funds often carry high fees, but if Gross is correct, those funds will be unable to deliver high returns. In a lower return world, volatility will likely be lower as well, and high fees will chew up a greater percentage of investors' assets.

In Gross' August outlook, he says of mutual fund expenses, common sense would dictate that the industry as a whole cannot outperform the market because they are the market, and long-term statistics revealing negative alpha for the class of active managers confirms it. Yet, what a price investors are willing to pay!