The commodities boom that occurred in the late 90s and much of the 2000s may be over, but PIMCO thinks that commodities are still a very worthwhile investment going forward.

“While we agree that future price appreciation won’t likely mirror the commodity ‘supercycle’ of double-digit annual growth from the late 1990s until the 2008 financial crisis, we do not believe this should necessarily imply a negative view on commodity returns,” PIMCO’s Nicholas Johnson and Greg Sharenow write in a guest column for MarketWatch. “Prior to the supercycle, most commodities were at multi-decade lows in real price terms. Today, most markets are trading within one standard deviation of their marginal cost of production — the cost of adding one more unit of production growth — suggesting that prices are at reasonable levels from a long-term valuation perspective. In addition, the roll yield from investing in commodities is the highest it’s been since 2005.”

The managers also say that commodities are a good inflation hedge. “While some recent studies have questioned the diversification that commodities can provide, we believe that these studies are overly focused on extremely short periods of time when inflation was stable,” they say. “Amid stable inflation, commodity performance is typically driven primarily by changes in growth expectations, and in particular those of emerging markets. In such an environment, commodity performance will likely show a higher correlation with equities.” The benefits of commodities grow more clear as inflation rises, they say, “because the prices of commodities also tend to rise, while the impact on the present value of future corporate earnings is much less clear.”

Johnson and Sharenow look at the factors that make up commodity returns and what the future may hold. Their conclusion: “While the supercycle may be dead, the outlook for commodity returns seems broadly consistent with historical returns, and commodities remain an important tool for hedging inflation risk.”