PIMCO Expert on Inflation: ‘Goldilocks Days’ Are Over

Still, Worah notes, he and other PIMCO experts do not predict “an inflationary spiral resembling the 1970s.” Thirty years ago, there was less faith in central banks and unions had more power. “The situation is different today,” he said.

Investment Strategies

As for what investors can expect by investing in commodities, Worah says that this asset class has given investors a positive real rate of return – a return above inflation. “The main risk would be to not understand that commodities are a volatile asset class; prices will not go up in a straight line and there could be periods of negative returns,” he explained.

That said, many investors are under-allocated to commodities, in his opinion. “So just making the basic investment in commodities could potentially provide them a hedge against inflation, and that is the primary benefit,” the analyst shared.

The two commodities that best fit this bill? Crude oil and copper. “Both of them are strongly connected to global growth and emerging market growth in particular. And both have significant supply constraints such that, if demand growth continues at the same pace for the next couple of years as it has been, we could see significant supply shortfalls,” he wrote.

Worah is bullish on inflation-linked bonds, because “one way for developed markets to escape from their debt overhang is by artificially keeping real rates low.” Thus, inflation-linked bonds “have the potential to hold their value while serving as a cornerstone of an inflation-hedging strategy”.

In addition, the PIMCO portfolio manager argues that now is not the time to be passive. “[In] this environment, investors are ill-served by passive strategies that lock in these low real rates of return,” he shared. Instead, they should seek out “prudently managed active strategies that provide the benefits of inflation-linked bonds while attempting to enhance the offered yields.”