Viewpoints

Commodities Outlook 2018: Still Bright

We see opportunities for investors in most commodities this year.

Everyone seems to be a commodities bull lately. PIMCO is no exception: Our latest Asset Allocation Outlook suggests an overweight to real assets, including commodities.

Yet despite our positive view, we think those who expect commodities prices to keep rising may be disappointed. The secular themes of innovation and fading resource constraints are still intact, as best exemplified by the growth in shale production that sparked a bear market in natural gas seven years ago, ultimately spreading to oil. While we see potential for higher prices for most commodities, we believe oil, the largest component in nearly every commodity index, will remain range-bound. We think positive returns from oil are still likely, however, given investors’ ability to roll higher-priced short-term contracts into lower-priced longer-term contracts. Such roll yield opportunities will likely be an important contributor to oil returns.

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The Author

Greg E. Sharenow

Portfolio Manager, Commodities and Real Assets

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Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Commodities contain heightened risk, including market, political, regulatory and natural conditions, and may not be suitable for all investors. Derivatives and commodity-linked derivatives may involve certain costs and risks, such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Commodity-linked derivative instruments may involve additional costs and risks such as changes in commodity index volatility or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Investing in derivatives could lose more than the amount invested.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice. Investors should consult their investment professional prior to making an investment decision.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2018, PIMCO.