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Contributor ○○

Pimco CEFs & Possible Alternatives

 

Over on the B/S/W thread concern has been expressed about PTY's lofty premium.  I am adding a few more remarks on the topic so as not to divert the B/S/W thread.   Since the Feb crash, many CEFs are showing very similar chart patterns: the vicious crash across practically the entire CEF spectrum, a partial rally and now, for some time, a nearly flat close trading pattern as funds seek a reason to move one way or another.   Many of us had come to trust Pimco over the years, and treated their CEFs almost as super-annuities..    The good news is that for the most part, the Pimco CEFs continued their monthly distributions -- but people who owned and held saw their net worth plunge much deeper than they expected.

As ever, the question is: now what?

I found three monthly-paying convertible or multi-sector funds that might be suitable replacements for Pimco CEFs in case they move deeper into premium territory.     They are   NCV: 12%y at 8% discount.   VGI:  15%y.  11% disc.   BIT: 11%y. 12% discount.   What is interesting is that, for most Pimco CEFs, the NAVs have been relatively stagnant, but the NAVs of the above three funds have been climbing recently....even if their prices haven't.

For any long-time Pimco owner the question might be to take the tax loss on your holdings now and move to one or two replacements mentioned for the discounted yield.

Would be glad to read any criticism of this thought.

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9 Replies
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Explorer ○○○

Re: Pimco CEFs & Possible Alternatives

Not really into this area but in last year have done considerable CEF’s so I looked at VGI CEF. My thoughts: Since 2012 price and NAV moving down with price from $20 to about $12. Distributions decreased from late 2017. ROC is a huge part of distributions. True the distribution rate is great but I personally just got burned pretty badly with high distributions and even past regularity that failed in 1st QTR 2020.

I wouldn’t touch this one.

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Participant ○○○

Re: Pimco CEFs & Possible Alternatives

It also looks like NCV has cut distributions more frequently than PIMCO and is getting into ROC to meet the current distribution. Same with BIT. Though it increased its distribution recently, it's also dipping into ROC to meet that obligation. Now I know a lot of people here yell about ROC and it's impact. I'm not knowledgeable enough to do that. But I'll just point it out that part of the distribution is from ROC.

I've been in PIMCO for a few years now. I agree that everything is treading water these days. But the market is on ice trying to see what's going to happen with the chaos caused by the virus and the shutdown. Are we going to open successfully? How many more cases will there be? Will there be good or bad news on the treatment/vaccine front? I think a lot of market sectors are treading water until some of those issues are resolved. Only technology seems to be trending higher because tech workers are really impacted by this virus (white collar jobs, working from home, young adults). 

I hope PDI PCI PTY and PKO. I'm reinvesting dividends in all of them, but agree that it's difficult to see the logic of adding to my positions with the available cash. It's going to be an interesting summer in the market that's for sure. 

GLTA

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Frequent Contributor

Re: Pimco CEFs & Possible Alternatives

For my bond investments, I only invest in DoubleLine and Pimco and I have no interest in other funds no matter how good they may seem.  These are the 2 bond houses that give me the most transparency and confidence.  I read and listen to what they make public.  I don't have infinite time to follow others.  Wrt bond CEFs, I divide them up 50:50.  I was at 17% of PV, but now closer to 15% of PV.  That is my new range.  Over the years, my Pimco CEFs grew faster than my DoubleLine.  I never really rebalance.  Pimco CEFs are popular and investors bid up the price to what I consider are crazy premium levels but I haven't done anything about it.  I accepted the fact that some day my Pimco CEFs would go boom.  And they did.  Now I have a higher % in DoubleLine.  As long as I keep within my target range of 15% to 17% of PV, I have a Richard Dreyfus attitude ...   Let it ride.  

P.S.  I am not criticizing your thought.  It certainly could have merit.  I just don't have the inclination or time to find out,  

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Explorer ○

Re: Pimco CEFs & Possible Alternatives

A number of years ago, with the advice of Capecod, I got into PDI, then later into PCI, where I continue (after 2015) to hold most of my bond money, along with a significant investment in PFN, and some limited investment in DSL.  Of course I wasn't happy with the recent crash in PCI, but then its been good to me, and the PIMCO managers have the knack of taking advantage of volatility. So I see no reason right now to leave either PCI or PFN, both of which are an the lower end of premium among the PIMCO taxable CEFs. 

While PIMCO is transparent in one sense -- releasing monthly numbers, we don't really know their internal movements which go beyond the buying and selling of bonds, but I trust their judgment more than my own.  And my DSL investment is much smaller, though I find Gundlach's periodic calls entertaining and often informative, but more about the general market than about fixed income investing.  The remainder of my fixed income investments are in some 6-8 National Muni CEFs, along with a fund of Muni CEF funds, RMI.  The latter is an experiment to check on their ability to trade in and out of Munis. I hold these Muni CEFs partly to lower my adjusted gross income and partly on the belief that we are in a low growth phase and ultimately higher tax situation in which Munis will hold up OK.  Also I have a chunk of Preferred CEFs -- FPF, JPS, JPC, the latter two in taxable accounts due to their high level of qualified distributions.  All fixed income CEFs, except JPS, JPC, and the Munis are in tax deferred accounts.

I see no reason to move out of PIMCO (PCI and PFN), though I do not hold PTY, which, in the past, I have found to be tradeable.  In the late 2018, I bought into PTY when it ran down to no premium, then sold a month or so later when it was back up to 20% premium.  Unfortunately, I missed the most recent crash in PTY or I would have pursued the same strategy as earlier.  Too frantic a time to do much of anything.

 

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Explorer ○

Re: Pimco CEFs & Possible Alternatives

Here is one source where I try to keep up developments with PIMCO: https://seekingalpha.com/article/4347753-what-pimco-done-in-terms-of-leverage-for-taxable-funds?ifp=...

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Explorer ○○○

Re: Pimco CEFs & Possible Alternatives

Astrokny says: "I hope PDI PCI PTY and PKO. I'm reinvesting dividends in all of them, but agree that it's difficult to see the logic of adding to my positions with the available cash. It's going to be an interesting summer in the market that's for sure."

Add PFN to those 4 CEF's and I just did a PV Back Test with distributions reinvested and then taken at an assumed 10% annual rate. From 2013 until 2/1/2020 taking distributions monthly provides a compound return of just under 3% with no drawdowns > 11% and 8 out of 10 <  3%. With reinvestment, the compound return shoots up to about 13.7% with the same drawdown history!!!

I heard above no new money into these CEF's now. I personally am looking at cleaning out my "stupid" CEF choices that previously paid high and had consistent payments but failed the 1st QTR stress test and replacing with PIMCO. The PIMCO CEF's are paying a very nice distribution at current prices and I figure that I either take a probable permanent or very long term loss with0 the losers or have a much better and shorter chance at recovery in PIMCO.   :-)))

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Participant ○○○

Re: Pimco CEFs & Possible Alternatives

Mortgage centric CEFs and ETFs don't seem to be doing well lately.

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Contributor ○○

Re: Pimco CEFs & Possible Alternatives

Here is my leveraged 1-penny. It appears there are a few reasons one holds FI CEFs.

  1. One believes through TA or other means they can trade in and out of them to take opportunity of price dislocation and X-div. date for yield.
  2. Buy and hold and realize the power of compounding at a high level of distribution.
  3. Buy and spend the money (rather like an annuity) and don’t worry so much about price. (Or they do worry about it, a dangerous position, IMO)
  4. Hold small amount as a little extra bump in yield.

I clearly fall into the last category. Please raise your hand if anyone here knows what is going on internally with those things. When Cape Cod was around he was so good at explaining the workings that even I could almost understand. This uncertainty is compounded further by the fact that actions of retail owners can be very hard to predict. However, I feel that there is one prediction I can make with a high degree of certainty. If PCI, PDI, PTY, etc trade at a discount they will go to premium at some time in the not too distant future. They ALWAYS go to a discount sometime. One just needs to wait. So I hold a little PCI and PFN that I purchased at discount. If any trade near a 10+% premium I’m selling, regardless. I let my small allocation to PTY go longer than I intended. If I leave opportunity on the table, I’m fine with that. I’m currently holding a lot of PIMIX. It is yielding about 6% and has been climbing recently. I’m calling that CEF - lite.

 I will clearly be a contrary indicator regarding macro events that I think can impact FI CEF performance, but here goes. Wherever we are in the fight against CV19 we haven’t even begun to wrap around the effects of mass unemployment, mass printing of money, etc. Add to that any of the possible events (made more possible now, IMO) such as a terrorist attack, violent social unrest at election time, not to mention the possible ramification of said election. I’d rather be in a position to enjoy a massive drop in FI CEFs than a distraught holder. As I mentioned on the B/S/W thread I saw some pretty sad postings a while ago and it SEEMS to me that some folks have short memories. One of the riskiest propositions an investor can make is to have more confidence in their ability than is based on reality.

On the subject of other opportunities/options I’ve been holding and adding to preferred leveraged, FPF.

Wishing everyone good luck and health. - rm

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Contributor ○○

Re: Pimco CEFs & Possible Alternatives

 

Good post, rm.     Much to consider.

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