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Our Favorite Commodity Fund Clobbers Its Index

Treasury inflation-protected securities provide a layer of protection.

Pimco CommodityRealReturn Strategy (symbol PCRDX) trounced its benchmark, the DJ-UBS Commodity index, over the past year. Manager Mihir Worah says that nearly all of the fund’s 25-percentage-point advantage is the result of the way the fund is constructed.

Pimco puts down collateral to back the futures positions it holds on the 19 commodities in the DJ-UBS index. Worah then invests most of that collateral in Treasury inflation-protected securities, to provide a second layer of inflation protection along with commodities. TIPS enjoyed a stellar 2009, and Worah, who also manages Pimco’s TIPS fund, outpaced that fund’s TIPS benchmark by ten points over the past year.

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