Pimco Launches New Fund To Capitalize On Long-Term Inflation
20 September 2011 - 10:29PM
Dow Jones News
Pacific Investment Management Co., one of the world's largest
asset-management shops, is launching a new fund that aims to take
advantage of inflationary trends by investing in a broad range of
assets.
The Pimco Inflation Response Multi-Asset Fund, launched Tuesday,
hopes to bank on the firm's long-term view of rising commodity
prices and weakening developed-nation currencies. The
inflation-oriented fund looks to protect investors against and earn
returns based off rising prices with investments across various
asset classes, including Treasury Inflation Protected Securities,
commodities, emerging-market currencies, gold and real estate
investment trusts.
The new fund will be managed by Mihir Worah, head of Pimco's
Real Return portfolio management team.
"This fund is an effort to address both the possibility of
higher-than-expected inflation over time as well as the desire for
a one-stop solution that can protect and even benefit from a wide
variety of inflation scenarios by deploying the broadest possible
set of tools," Worah said in an emailed response to questions about
the fund.
Before fears about a global economic slowdown started taking a
toll on investors' sentiment this summer, inflation was one of the
market's biggest concerns. At the time, oil prices were soaring and
emerging-market policymakers tried to keep growth in check by
hiking rates.
Even though commodity prices have eased from their peak in
April, Pimco sees continuing upward pressure over the next few
years, fueled by a weaker U.S. dollar and "what we see as the
Federal Reserve's inflationary bias," Worah said. Worah also said
that his team expects the dollar to weaken as much as 10% to 15%
against emerging-market currencies in the next couple of years.
Currently, the fund's holdings reflect a modest preference for
TIPS and gold as defensive assets, Worah said, and a slight
underweight in commodities and REITs. It also owns some securities
that will help protect against a swift decline in equity
markets.
Gold is traditionally considered a good store of value and a
popular way to hedge against rising prices, which erodes the worth
of other investments over time. As of Monday, Comex gold futures
are up 25% on the year.
TIPS, which see their value grow as consumer prices climb, have
been among the best performing U.S. fixed-income assets this year.
Through Monday, TIPs have offered investors 11.8% in return,
according to the Barclays Capital TIPS index, topping regular
Treasury bonds' 7.8% return in the same time frame.
"In the near term, we think shorter maturity TIPS yields will
have a hard time going lower unless we see truly unconventional
measures, beyond maturity extension, coming from the Fed," Morah
said. "Longer maturity real yields, however, could still decline
from current levels."
The product debuts at a time of great uncertainty across
financial markets, and inflation has lost its perch at the top of
investors' concerns. Still, Morah says "inflation hedging is a
long-term portfolio strategy" and believes that many investors'
holdings aren't aligned with the risks of rising inflation.
Pimco oversees more than $1.3 trillion assets globally,
including $245.5 billion in the Total Return Fund managed by
founder and co-chief investment officer Bill Gross.
-By Cynthia Lin, Dow Jones Newswires; 212-416-4403;
cynthia.lin@dowjones.com