Why Now Is a Good Time to Invest in Commodities

Commodities stand to benefit from underinvestment and the clean energy transition.

Launched in May, PIMCO Commodity Strategy Active Exchange-Traded Fund (CMDT) offers long-term investors the potential for diversification and inflation protection. We have a positive outlook for commodities based on supply constraints, the transition to a net-zero economy, and their historical correlation with inflation. In this Q&A, Michael Haigh, executive vice president and commodities and real assets economist, and Greg Sharenow, managing director and head of PIMCO’s commodity portfolio management group, explain their views.

Q: PIMCO has just launched a commodity exchange-traded fund. Why now?

A: In an uncertain inflationary environment with a more volatile economic outlook, we believe commodities offer diversification and inflation-protection potential. The recent rebound in prices confirms the importance of holding commodities, in our view.

The fund launch is consistent with PIMCO's history of innovation and market leadership in commodities. We have a long-established mutual fund franchise, and the commodity ETF is a natural extension that responds to investor needs for a beta product that embeds active management.

Q: What is your near- and long-term outlook for commodities?

A: In the near term, U.S. headline inflation looks likely to moderate, but core inflation has remained stubbornly high. Critically, commodities have tended to benefit from their extremely tight link with both inflation and inflation surprises.

We foresee a mild recession in 2023. History suggests that when spare capacity and investment is limited prior to a recession, supply constraints tend to emerge once demand growth resumes. These conditions exist today, so a long-term investor may view weakness stemming from a mild recession as an opportunity to use commodities to guard against inflation.

Over the longer term, the net-zero transitions and deglobalization could add to upside inflationary risks. Transitioning to a net-zero economy will be commodity-intensive. We expect unavoidable bottlenecks as demand outstrips supply, setting commodities on an upward trend in the coming years.