Investors should avoid chasing yields and remain flexible to seize potential opportunities from market disruptions, with the high likelihood of a recession over the next three-to-five years, according to a new economic outlook by Pacific Investment Management Co.

“We will emphasize flexibility to respond to events, keeping some powder dry and emphasizing liquidity over chasing the very highest yields,” according to the outlook released Wednesday by Pimco’s Joachim Fels, Andrew Balls and Dan Ivascyn.

Global growth is expected to be lackluster with low inflation before a recession occurs in advanced economies likely within five years, followed by a sluggish recovery, according to the “Dealing With Disruption” report. The outlook is clouded by “fatter tails than usual” amid concerns about disruptive forces.

Those potential economic disruptors are:

• China, which poses a triple threat, including a trade war with the U.S., a move up the economic value chain to compete with more developed economies and as a growing geopolitical power that poses a rival to U.S. dominance
• Populism from the right or the left, which can disrupt global trade and cooperation
• Aging demographics, such as “Japanification” in the euro zone, will spur central banks to keep rates lower for longer, threatening the financial sector and retirement savings
• Technology as a double-edged sword that may increase both productivity and unemployment
• Financial market vulnerability, following the recent Federal Reserve pivot away from tightening, “has the potential to lead to greater excess in valuations, particularly in credit and similar to the period in the mid-2000s before the onset of the global financial crisis. We are not there yet, but it makes sense to watch very closely for excesses and the potential for corrections.”

Pimco prefers U.S.-guaranteed mortgage-backed securities as a defensive source of income. It “will pursue high-conviction ideas in corporate credit” while remaining cautious overall on the asset class.

The report summarizes discussions from this month’s annual secular forum at the $1.76 trillion asset manager’s Newport Beach, California, headquarters.

Advisers at the forum included former Federal Reserve Chair Ben Bernanke, former European Central Bank President Jean-Claude Trichet and former U.K. Prime Minister Gordon Brown. Janet Yellen, who served as Fed chair after Bernanke, was a guest speaker.