My Top- and Bottom-Performing Funds Are From the Same Shop

Russel Kinnel: My best- and worst-performing funds come from the same fund company. The story of the bookends in my portfolio is a pretty quick summary of what’s going on in the economy.

My Top- and Bottom-Performing Funds Are From the Same Shop

1. Pimco Commodity and Real Return Bond Alpha PCRAX
2. Pimco Total Return PTTRX

Pimco Commodity and Real Return Bond Alpha is up 28% for the year to date, while Pimco Total Return Bond is down 3% for the year to date. What’s up with that? Well, the first fund is meant to be an inflation hedge, and the second one is vulnerable to inflation, as most bond funds are.

Inflation is spiking right now because of the war in Iran, which has sent oil and gas prices through the roof. Built as an inflation hedge, the fund [Pimco Commodity and Real Return Bond Alpha] uses quite a few tools to get there. It holds commodity derivatives with an emphasis on oil and gas, but it also has exposure to base metals as well as gold. It has significant exposure to agriculture and livestock. As you may recall from your last trip to the grocery store and gas pump, most of those prices are up quite a bit. On top of the commodities exposure, Pimco invests in inflation-protected bonds, thus adding another level of inflation hedging.

This year, the fund is really coming through when investors need it most. If you have a lot of your portfolio in fixed income, it’s a pretty handy fund to own. Just remember that it’s super volatile, so you don’t want to make a core position out of it.

On the flip side is Pimco Total Return, a Gold-rated bond fund. Surging inflation plus huge debt issuance related to AI has the 30-year bond at around 5.6%, its highest yield since 2002, and the 10-year Treasury at about 5.3%, its highest point since 2007. That surge in interest rates has the broad bond market down about 2.5%, and Pimco Total Return is doing a little worse than that because it had a little more interest rate risk than peers and benchmark. This would be the fund’s worst year since 2022, when it lost 14%.

The bond market pain is particularly challenging for retired investors who see their purchasing power erode at the same time that a big part of their portfolio is underwater. The bad news for me is my Pimco Total Return position is much larger than my Pimco Commodity and Real Return Bond Alpha position.

Watch 14 Elite Funds and ETFs, and 5 Popular Funds That Just Missed the Mark for more from Russel Kinnel.