Diversified Real Asset Strategy

Investment Philosophy for Diversified Real Asset

Diversified Real Asset, or PIMCO’s Triple Real ® approach, represents a synthesis of PIMCO expertise in managing portfolios dedicated to TIPS, commodities and real estate. In each of these real return asset classes, PIMCO’s approach relies on our longstanding core competency in fixed-income and derivative management. As with all PIMCO portfolios, our investment process incorporates “top-down” global macroeconomic views and “bottom-up” sector-specific views that seek to provide multiple concurrent sources of added value. This process enables PIMCO’s Real Return team to draw from PIMCO’s global macroeconomic forecasting process, sector-specific teams and regional-specific teams in order to optimally structure real return portfolios.

Within Diversified Real Asset we seek to add value within each asset class by outperforming its respective market index, and also by opportunistically tilting the exposures of the asset classes above or below their equal one-third weights. Our strategies for adding value within each asset class include:

Commodities – In commodities management, PIMCO uses derivatives linked to commodity indices to gain core exposure to the asset class. This provides exposure to the investment returns of the commodities markets, without investing directly in physical commodities. We fully collateralize those derivatives with fixed-income securities.

We seek to outperform the Bloomberg Commodity Index by actively managing both our collateral and commodity exposure. Within the collateral, we actively manage an enhanced cash portfolio to outperform the passive three-month T-bill collateral return assumed within the commodity index. Within the commodity exposure, we actively employ structural commodity-based strategies that seek to exploit opportunities within the commodities markets. Examples of these include optimizing the rolling of underlying commodity futures, managing roll yield, and evaluating highly correlated substitute exposures. The combined alpha from actively managing both the collateral and the commodity exposure defines the PIMCO Double Alpha ™ approach that we bring to commodities portfolios.

Real Estate – In real estate management, as in commodities, PIMCO uses derivatives linked to a real estate index to gain basic exposure to the asset class. This provides exposure to the investment returns of the REIT market, without investing directly in individual REIT securities. We seek to outperform the Dow Jones U.S. REIT Index by actively managing an enhanced cash collateral portfolio to outperform the LIBOR-based rate assumed within the derivatives used to gain the core real estate exposure.