Saturday, February 24, 2018

Pimco Fund Hedges Inflation With Commodities and TIPS

January 11, 2010 by  
Filed under Inflation Hedge Strategies

In a New York Times interview, reported Dec. 9, 2010, Mihir P. Worah, Manager of the Pimco Commodity Real Return Strategy Fund PCRDX; explained that:

“Commodities protect you from a different kind inflation than TIPS do.Commodities reflect prices at the wholesale level — things like crude oil, copper and wheat.” TIPS, he noted, are indexed to the Consumer Price Index “and reflect prices of things like bread, cars and airline tickets.”

In a Washington Post reported on December 6, 2009, that through Nov. 30, 2009, the fund had

gained 38.3 percent, a stunning 22 percentage points more than the benchmark it purports to follow, the Dow Jones-UBS Commodity Index.

The Post notes that although Worah and Pimco, while bullish on commodities  in the the long term, for the next three to six months they are bearish on both Tips and Commodities.

Over the medium to long term, Worah says, he’s bullish on commodities. Pimco expects higher inflation in three to five years, and Worah notes that hundreds of millions of new consumers from places such as China and India will underpin robust demand for commodities, some of which are constrained by tight supply. “Most people are underinvested in inflation hedges,” he says.

But for the next three to six months, Worah says, he’s mildly bearish on both TIPS and commodities, which he thinks have risen faster than the slow pace of economic recovery justifies. In fact, he’s moved some of his collateral out of TIPS and into medium-maturity Treasurys, corporate bonds and foreign debt.

Here’s a link to the fund’s prospectus.

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