Pimco, T. Rowe Price Warn Investors: ‘Time to Reduce Risk’

The firms join a chorus of warnings from the biggest names in the asset management industry after the S&P 500 Index rose 16 percent in the past year and has reached record levels. This week DoubleLine Capital's Jeffrey Gundlach and BlackRock Inc.'s Russ Koesterich also advised investors that it's time to take risk off the table.

Pimco's allocation recommendations mark a shift from the start of 2017 for the firm, which managed $1.61 trillion as of June 30. One change since February is the reduced prospects of a U.S. fiscal stimulus, such as tax reform or infrastructure spending, under President Donald Trump.

"We expect that any U.S. fiscal package that passes be tilted to tax cuts, but light on reform," Worah and Sundstrom wrote. "We see limited fiscal space in Europe."

In its midyear report, Newport Beach, California-based Pimco recommends underweighting equities, especially U.S. stocks, following recent rallies. The firm also advises investors to reduce high-yield debt as defaults could climb and yield spreads could widen, while keeping exposure to better-quality credit, such as non-agency MBS likely to benefit from a healthy U.S. housing market.

Pimco suggests maintaining investments in "real assets," such as inflation-linked bonds, commodities, gold and real estate investment trusts.

At T. Rowe Price, the move affects $265 billion of its $904 billion under management and only applies to asset allocation portfolios, said Page. A typical portfolio with 60 percent stocks and 40 percent bonds now holds 58 percent in equities. Between 2000 and 2010, the equity portion peaked at 67 percent, he said.