Mohamed El-Erian says the global economy is at a crossroads.
‘Investors cannot rely on correlations as a risk mitigator,’ he says
Investors shouldn’t underestimate the role of cash in their portfolios said Mohamed El-Erian, chief economic adviser at Allianz Global Investors.
At a breakfast meeting with reporters on Monday, the former Pacific Investment Management Company chief executive said central bank asset purchases have successfully decoupled asset prices from fundamentals and distorted traditional correlations.
Indeed, the S&P 500 SPX, -3.59% climbed to record levels in 2014 and the first half of 2015 even as commodity prices, notably energy, plunged.
“Investors cannot rely on correlations as a risk mitigator, making cash a very valuable thing to have,” he said.
“It can give your portfolio resilience during stressful times, optionality—whether you use it for tactical or strategic purposes and flexibility to deploy it when necessary,” he said.
El-Erian also said years of unconventional monetary policy, including asset purchases, and a lack of fiscal stimulus are making developed economies less stable.

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