Bill Gross Bets on Real Returns

04/09/2004 12:00 am EST

Focus:

PIMCO, which is best known for its bond funds, also offers its Commodity Real Return fund, which provides an easy way for investors to participate in the commodities markets. This fund is currently top-ranked by both Eric Roseman and Janet Brown, who offer their reviews.

(For more information on the advisors cited below, click on their photos.)

Brown, Janet"Whatever you do, don't underestimate PIMCO Commodity Real Return class A (PCRDX)," says Janet Brown, editor of NoLoad Fund*X." Just because it is in our 'total return' category of funds is no means a guarantee of a smooth ride. Indeed, prices can plunge and soar at moment's notice and this fund zigs and zags with the best of them. That said, the trailing 12-month yield is more than 8%, which qualifies it as a total return fund. Pimco Commodity invests in derivatives to gain exposure to commodities and uses a portfolio of Treasury Inflation Protected Securities (TIPS) as collateral. Rather than buying individual stocks, or physical hard assets such as gold to gain that exposure, the fund uses futures and swaps to simulate the price movements of the Dow Jones AIG Commodities Index, which tracks the futures price of 20 different commodities, including energy, livestock, grains, both industrial and precious metals in addition to 'soft' commodities, such as cotton, coffee, and cocoa. Commodities are not like equities and fixed income. They are a distinct asset class in that they benefit from rising inflation, and often have an inverse correlation to the equity and bond markets. And by using TIPS as collateral, the fund also receives additional excess return from the TIPS. As a testament to both the reputation of PIMCO and growing concerns of inflation, the fund has grown to more than $2 billion in assets, in little more than a year."

Roseman, Eric "PIMCO Commodity Real Return Strategy Fund Class A  is my favorite speculation on a broad range of raw materials for this decade; make sure you have this fund in your portfolio now," says Eric Roseman, editor of Commodity Trend Alert.  "It is the best performing retail commodity futures fund in its class since 2002. Apart from energy, which is a hefty 30% of assets, commodities are still on an uptrend and should be accumulated. The fund provides a double real return strategy. It invests in commodities futures and inflation-indexed TIPS. Since commodities futures are conducted using margin, the fund can invest most of its assets in income-generating TIPS and other bonds. I think it's a clever formula to pay for the commodities margin while collecting income at the same time from the TIPS. And I'm not the only one excited about this fund. PIMCO's boss, legendary fixed-income guru, Bill Gross, is extremely bullish on inflation, commodities, and TIPS. He even put several million of his own dollars into the fund. Gross, an astute bond fund manager at PIMCO, is now a bond bear. He's very bullish on commodities and believes inflation is coming back. That's an incredible admission from a man whose livelihood mostly depends on bonds. Meanwhile, c ommodities are great investments because they truly offer negative correlation to other asset classes, including stocks and bonds. They should be at least 10% of your asset class allocation since we're especially bullish on hard assets this decade, and increasingly bearish on the stock market. In 2002, the Fund gained an impressive 24% in just six months following its June launch. In 2003, it climbed 29.1%. Already this year, it's up another 17.4% through March 19th. This fund will deliver the bull market goods this decade, and I recommend this fund to all investors. The fund has a minimum investment requirement of just $5,000."

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