LONDON (Reuters) - The limited ability of central banks to counter a slowdown in global growth and the rising likelihood of a U.S. recession are among the risks that warrant a more cautious approach to investing in the coming years, U.S. money manager Pimco said on Thursday.

FILE PHOTO: A Pacific Investment Management Co (PIMCO) sign is shown in Newport Beach, California August 4, 2015. REUTERS/Mike Blake

The global economic and monetary policy environment still remains conducive to investors seeking the relatively high returns from risky assets like stocks and emerging market currencies, but high valuations and tight spreads warrant a greater degree of caution.

“Valuations look fair, and in some cases rich. The bottom line is we will have a focus on capital preservation ... and it’s time to be cautious in terms of our portfolio positioning. Having a little less risk in our portfolios makes sense,” said Andrew Balls, chief investment officer, global fixed income.

“We expect a lower return environment on the equity side as well as fixed income. We won’t respond by increasing the overall credit risk in the portfolios, but rather (look to) relative value trading,” Balls told reporters at a briefing in London.

The U.S. economic expansion is already into its seventh year so the chance of recession soon is growing. Balls put that at around 70 percent, adding that even though the Federal Reserve is normalizing policy it might still be hamstrung when the slowdown comes.

The euro zone is a few years behind the United States and is experiencing a relatively strong economic rebound. But the European Central Bank is still some way off raising rates or withdrawing stimulus, making it even less able to counter a downturn.

Balls said one area he and his colleagues are wary of is Italy. A 10-year yield of 2.20 percent currently is nowhere near enough of a return given the country’s political risks, lack of growth and high debt levels, he said.

Risks around U.S. foreign and trade policy, a negative reaction to central banks withdrawing stimulus and a “hard landing” in China are also potential catalysts for a broader market downturn, Pimco said.

“We don’t take a negative view on risk assets per se, but we don’t want to get ourselves too over exposed to risk assets having been through a very good run,” said Mike Amey, Pimco’s Managing Director and Head of Sterling Portfolios.

Pimco said certain emerging currency and fixed income markets like Mexico, Brazil, Indonesia and India are still attractive.