Airlines, lodging are the next wave of this rally – PIMCO CIO
Aug. 28, 2020 2:35 PM ET|About: American Airlines Group Inc. (AAL)|By: Kim Khan, SA News Editor
Bond giant PIMCO is already overweight the travel and tourism sector, anticipating the companies can ride out the pandemic, Mark Kiesel, co-manager of PIMCO’s $71B total return fund, says.
“Even if you look at the deeply-affected COVID-hit sectors, these companies have 20 to 36 months of liquidity,” Kiesel tells Bloomberg. “Any vaccine that comes out in the next 6 to 12 months, I think you could see a rebound and that’s the next wave or the rally.”
PIMCO is overweight the sector “in a prudent way,” aware that the recovery won’t be a straight line, and inventing “eyes wide open”, he says.
“We’ve lent to airlines through secured bonds, which are basically collateralized by very new planes” and also to lodging companies that are leaders in the field and gaming companies, Kiesel adds.
As far as interest rates are concerned, the U.S. is probably closer to the lows, he says. Monetary policy has been “unbelievably supportive” and fiscal stimulus, even after the election, such as infrastructure spending, could lead to a steepened curve.
Looking to the Fed, Jerome Powell is making a smart move after 16 years of undershooting inflation, Kiesel says.
He points out that the Fed’s Secondary Market Corporate Credit Facility has only used 5%, just $13B of $250B allocated, put $1.4T in investment grade supply has been priced, a “100 multiplier on the Fed’s money, one of the most successful central bank programs in history.”
Related stocks: American (NASDAQ: AAL), United (NASDAQ: UAL), Delta (NYSE: DAL), Southwest (NYSE: LUV), JetBlue (NASDAQ: JBLU), Marriott (NASDAQ: MAR), Hilton (NYSE: HLT), Hyatt (NYSE: H), InterContinental Hotels (NYSE: IHG), MGM (NYSE: MGM), Wynn (NASDAQ: WYNN), Las Vegas Sands (NYSE: LVS)
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