Pimco's El-Erian Sees Opportunities in Fed's Tapering Decision

Sunday, 22 Sep 2013 04:51 PM

By Dan Weil

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The Federal Reserve's decision last week to refrain from tapering its quantitative easing yet leaves several areas where investors can make money, says Pimco CEO Mohamed El-Erian.

"Investors want to go where the Fed can succeed in its financial repression," he told CNBC, referring to the Fed's campaign to keep interest rates at rock-bottom levels. "That means the front end of yield curves. That means selling volatility."

Interest-rate-sensitive sectors of the stock market should thrive too, El-Erian says.

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

In addition, companies that have room for "financial engineering" should be winners, El-Erian says. "This is a great environment for financial engineering that brings cash to the equity holder, either through buybacks or through higher dividends."

Companies can pay for those buybacks and dividends by borrowing money at ultra-low interest rates.

"And finally, don't forget those sectors that were severely dislocated by concerns about the taper," El-Erian says. "The muni sector, high-quality munis, emerging market bonds. So there are lots of opportunities."

But remember that the Fed may not succeed in keeping interest rates down, so don't put too much money at risk, El-Erian says.

And investors still can't be sure what will come next from the central bank.

"There's going to be a little more uncertainty about what the Fed's intentions are and what the future holds," Robert Baur, chief economist at Principal Global Investors, told The New York Times. "That uncertainty is going to keep people nervous."

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

Related Stories:

Fed Delays Bond Tapering, Wants to See More Data

Fed Can Be Patient on Tapering While Inflation Is Low – Bullard

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