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Pimco is modestly overweight commodities

Pimco is modestly overweight commodities

While Pimco has suggested an overweight rating on real assets in its latest asset allocation outlook, it has called for a modest overweight to commodities.

It believes oil – the largest component in nearly every commodity index – will remain range-bound, even if it sees potential for higher prices for most commodities.

‘We think positive returns from oil are still likely, however, given investors’ ability to roll higher-priced short term contracts into lower-priced longer term contracts,’ Pimco said in its investment report.

‘Such roll yield opportunities will likely be an important contributor to oil returns.’

The asset manager sees a positive picture for the commodity complex this year, outside of gold. It has a constructive view on natural gas, petroleum, base metals and agriculture, but is underweight precious metals, however.

‘In the case of oil, our modestly positive view is driven primarily by the shape of the oil price curve – which is currently in backwardation – and the ability for forward prices to move up toward current spot prices,’ the firm said.  

Pimco is quite sanguine on natural gas and mildly positive on agriculture, though it believes some deviation away from normal weather will be necessary to realise potential gains for the latter.

Meanwhile, it is cautiously positive on base metals given the solid global growth outlook, even when it thinks gold is currently rich.

Data from the Investment Management Association of Singapore showed that as of end-December 2017, commodity funds registered an inflow of 1.7 million, out of the overall capital inflows of S$8.89 billion ($6.74 billion) into unit trusts.

Among the commodity funds available for sale in Singapore are the PIMCO GIS Commodity Real Return Inst USD ACC, DB Platinum Commodity USD R1C and CS (Lux) Commodity Allocation Fund B USD.

As of end-January, PIMCO GIS Commodity Real Return Inst USD ACC posted a 4.2% one-year total return. Meanwhile, DB Platinum Commodity USD R1C and CS (Lux) Commodity Allocation Fund B USD posted one-year returns of 6.5% and 2.5%, respectively.

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