PIMCO, the world's second-largest bond fund manager, is venturing into stocks, taking on competitors BlackRock (NYSE: BLK) and Legg Mason (NYSE: LM). The firm, which manages more than $1 trillion in assets, launched an equity mutual fund in April. Although PIMCO is an upstart in the equity world, it has hired a first-rate team. Their fund's current holdings highlight the best areas to look for value in today's market.

'New normal' meets deep value
PIMCO is known for its 'new normal' thesis, which says economies will grow at lower rates and will decline relative to emerging economies with superior growth dynamics and healthier public finances. Accordingly, PIMCO's EqS Pathfinder fund can invest globally. However, the managers, Charles Lahr and Anne Gudefin, are bottom-up value investors who managed funds at the respected Mutual Series of Franklin Templeton Investments. Lahr is based in New York; Gudefin works out of London.

Focus on European stocks
At present, the duo believe Europe is the greatest area of opportunity. As of June 30, a third of their portfolio was invested in the U.K., France, Switzerland, and Germany. As Lahr explained last month: "Plenty of other companies are not exposed to sovereign risk thanks to their substantial foreign operations and other factors, yet they have been down substantially with the overall market in Europe, trading at meaningful earnings multiple discounts to their U.S. counterparts."

A European company poised for growth
Accordingly, one of their largest holdings is consumer staple British-American Tobacco (AMEX: BTI). This stock has little to fear from slowing growth in developed economies: Only 27% of its revenues come from Western Europe. Eastern Europe, Asia-Pacific, and the Middle East and Africa contribute twice that. (Similarly, Philip Morris International (NYSE: PM) generates more than a third of its revenues from emerging markets, yet its valuation multiples are only marginally higher than those of its U.S. counterpart Altria (NYSE: MO), which has no international revenues.)

One surprise holding
Finally, there is one surprise holding for investors that are typically focused on cash flows -- the SPDR Gold Shares ETF (NYSE: GLD) is their top holding. This is no longer unheard of among prominent value investors: John Paulson, David Einhorn, and Charles de Vaulx all own gold -- a sign of the deep uncertainty in this environment. Perhaps this is the one investment that Gudefin and Lahr made which is entirely driven by PIMCO's high-level outlook concerning the risks associated with the dramatic rise of government debt levels in advanced economies.

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