Commodities: Part of PIMCO’s Real Return Practice

Most investors’ liabilities are linked to inflation. As inflation raises prices, the nominal value of these liabilities rises also. But, all too often, stock and bond returns decline amid rising inflation. In addition, by owning a highly diversified set of assets – assets with low correlations to each other – investors can help enhance the overall stability of their portfolio under most market conditions. To meet investors’ needs for returns that are both diversified and resistant to inflation risk, PIMCO created its Real Return Practice. While the practice originally focused on the management of inflation-linked bond (ILB) portfolios, it has expanded to include real estate, tactical asset allocation and commodity investments. When managed properly, commodity investments have historically represented the asset class most highly correlated with inflation and least correlated with stock and bond returns. In other words, commodities are a hedge against inflation and a tool for diversification. And PIMCO also offers the capability to combine, in one integrated portfolio, exposure to both commodities and ILBs.

Role of Commodities in a Portfolio

Measuring Commodity Returns - An Index

Commodities - Expected Pattern of Returns

Source of Added Value

Commodity Alpha Strategies

Risk Management/Controls


​Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, and inflation risk. Inflation-linked bonds (ILBs) issued by a government are fixed-income securities whose principal value is periodically adjusted according to the rate of inflation; ILBs decline in value when real interest rates rise. Commodities contain heightened risk including market, political, regulatory, and natural conditions, and may not be suitable for all investors. PIMCO strategies utilize derivatives and commodity-linked derivatives which 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. Swaps are a type of derivative; while some swaps trade through a clearinghouse there is generally no central exchange or market for swap transactions and therefore they tend to be less liquid than exchange-traded instruments. The credit quality of a particular security or group of securities does not ensure the stability or safety of the overall portfolio. There is no guarantee that this investment strategy will work under all market conditions and each investor should evaluate their ability to invest for a long-term especially during periods of downturn in the market. Diversification does not ensure against loss.

This material contains the current 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.