PAXS is actually one of my largest holdings, so I continue to maintain that position. I'm not wild about PDO and PAXS' higher exposure to CMBS, though I realize these securities are extremely cheap and that PIMCO is looking long-term. My inclination is to favor PHK and PDI here, given the NAV track records and sector allocations. However, several other funds are extremely close including: The cheapest fund and the only one below the buy target level (as of this writing) is PIMCO Income Strategy II ( PFN). The cheapest funds are now more abundant on the taxable side. The table below shows total return NAVs with a split between PHK, PDI, and PFN while the newer funds, PAXS and PDO remain laggards. The yield is 12.74% and the fund remains one of the best performers on NAV. PIMCO High Income ( PHK) remains a decent buy here at a 3-4% premium to NAV. I didn't make any additional purchases of the PIMCO funds outside of PHK and PCN. In the last week, NAVs have started to recover a bit, which is leading to a sharp recovery in price. Levered up 50%, and you're at 14.25% before any expenses.Ĭefconnect, alpha gen capital Valuations Are Cheap But Recovering That is a steep bogey to hit each month unless you're in some real junky stuff - which looking at the latest holdings is not the case.Įven a portfolio of B-rated debt would yield only 9.5%. PDI currently has the highest distribution rate on NAV among the funds at 16.24%. The downward trend in the NAVs will eventually get the better of the funds and cause leverage to reduce, further compounding the under-earning. I still think the higher yield on NAV funds will eventually have to cut the distributions. The dollar was essentially flat against the euro and up a bit against the pound, but didn't contribute all that much to coverage changes. It remains to be seen what the driver of that improvement was other than the roll off of June's bad numbers. We saw significant improvement in the taxable, with the average moving from 65% to 87%. Ycharts Coverage Improvement With Poor June Roll-OffĪbove are the coverage numbers through September. In the chart below, you can see that over the last three months, NAVs have continued to bleed lower as interest rates rose, and the funds continue to overdistribute. We are starting to see some improvement in taxable NAVs which should help reduce overall leverage levels (if management chooses to). PDI is slightly lower at 43.5% compared to a three-year average of 45.2%. PAXS is nearing the upper end of their since inception range. Those effective rates are nearing the upper end of the range for the last three years for those respective funds. This is in line with PIMCO's outlook calling for increased volatility and a struggle for risk assets.Įffective leverage remains high across normal taxable funds like PDI (43.5%), PDO (44.6%), and PCM (46.5%). Overall, YTD changes in leverage are decidedly negative with most funds reducing by 20% to 40%+. In the last month, leverage change was not broad-based as some funds added while some funds reduced. Eight funds of the 12 on the taxable side are now at a discount.Įven typically high premium funds like PCM Fund ( PCM), PIMCO Corporate & Income Strategy ( PCN), and PIMCO Corporate and Income Opportunity ( PTY) have come way down in valuation and have since rebounded some.įor PCN, that one looked interesting for the first time in many years but one has to navigate a potential distribution cut. Today, the valuation story is very different with discounts materializing across most of the funds- something we could say about any taxable PIMCO fund two months ago. We think investors who are NOT buy-and-hold investors should think about lightening up any overweight positions and perhaps even tactically swapping out some of the PIMCO funds. Two months ago, the premium was almost 15%.Īt that point, I said it was a good idea to take some off the table. We noted just two months ago how valuations for PIMCO taxable CEFs were a bit excessive " With Valuations Moving Higher The Funds Are Not Compelling." You can clearly see that in the chart of PIMCO Dynamic Income ( NYSE: PDI) below.
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