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Picking Between PIMCO's Real Return Funds

Michael Herbst

Michael Herbst: We're going to compare and contrast three funds run by Mihir Worah and his Real Return team at PIMCO. We often get questions about how these three funds are similar and different from each other.

So, the first is PIMCO Real Return (PRTNX). This is the purest play on inflation-protected securities that Worah's team runs. It's benchmarked to the Barclays U.S. TIPS Index and, therefore, will track pretty closely to that particular index. The main thing to keep in mind for this inflation-protected bond fund is that Worah can invest up to 20% of assets outside of TIPS and outside of inflation-protected securities. So, at times, this fund will dive deeper into credit or non-U.S. bonds than some of its category peers.

This fund is also quite similar to and also informs PIMCO Commodity Real Return (PCRAX). And PIMCO Commodity Real Return lands in our commodities broad-basket category. So, this is more designed to move in-step with the commodities category rather than the inflation-protected bond category. What's different here is that PIMCO Commodity Real Return is benchmarked to the Bloomberg Commodity Index. So, it's taking its cues from a different index, if you will. Worah and his team will use a chunk of assets to gain derivatives exposure to that index. They will take small active bets versus that index. They then invest the rest of the collateral in a style very similar to PIMCO Real Return, so a mix of TIPS and other inflation-protected securities and periodically outside those sectors. But importantly, here, for PIMCO Commodity Real Return, there's a 2.5-year duration target in an attempt to limit the volatility contributed by the collateral investment.

The third fund is PIMCO CommoditiesPLUS (PCLAX), and this is a newer strategy. It's run by Nick Johnson. It's a more commodity-centric fund than PIMCO Commodity Real Return. So, actually it uses the benchmark for the Credit Suisse Commodities Benchmark. It takes larger active bets, and the collateral here is invested more similarly to PIMCO Short-Term (PFTCX) or the collateral sleeve's backing funds like PIMCO StocksPLUS (PSPAX). What's important here is that this is our true, actively managed commodities fund. It's the most active of the three funds; therefore, it's likely to be a touch more volatile at times. But for folks looking for pure-play commodities exposure, PIMCO CommoditiesPLUS is the way to go.