PIMCO’s big-yield bond CEFs are perennial favorites, however underdog BlackRock has been outperforming in some cases over the last 3-5 years. For example, BlackRock’s 9.8% yield bond CEF (BIT) is posting better total returns than PIMCO’s widely popular PDI. In this report, I explain why (including comparative metrics on distributions, leverage, potential return of capital and more), and then conclude with my opinion on how income-focused investors may want to consider allocating their income-focused investment dollars (i.e. PIMCO or BlackRock).
PIMCO Big-Yield Bond Funds (PAXS, PDI, PDO, PTY): Distributions > NII
PIMCO’s big-yield bond funds are often an income-investor favorite because of their large 9% to 13% yields. Some investors have been traumatized in recent years as prices fell hard (when the fed rapidly hiked interest rates) while other investors haven’t cared as long as the big monthly income payments kept rolling in. This article provides an update on PIMCO bond funds now, and my opinion on which may (or may not) be worth considering for investment, mainly in light of how PIMCO is sourcing the distribution payments to investors.
Market Overheating? High-Income Strategies Worth Considering
The market continues to climb a wall of worry, and some investors believe it’s getting a bit ahead of itself. For example, the S&P 500 is up +6.9% this year and up +27.4% over the last 12 months, but we keep hearing stories about a sputtering economy. If you are concerned the market is ahead of itself, and we may be due for a healthy pullback, here are 3 high-income investment opportunities for you to consider.
PDI (13.8% Yield): Up Big, More Gains Likely Ahead (100 Big-Yield CEFs Compared)
If you like high income investments, two things are likely true: (1) you are aware of the big double-digit yields offered by PIMCO closed-end funds (“CEFs”) and (2) you’re likely disgusted by the returns of said bond funds over the last few years. However, the tide has shifted as interest rate hikes have ceased (and may reverse). And as we correctly predicted, the brief price discount on PIMCO’s PDI (versus NAV) has evaporated and the shares now trade at a premium. What’s special is BOTH the premium and share price will likely increase dramatically in the months, quarters and years ahead. We explain in this short report and also share data on 100 other big-yield CEFs (many also paid monthly) for comparison purposes.
PDI vs. PDO: Building A Monster Big-Yield Portfolio
There are as many prudent dividend strategies as there are dividend investors. However, in this report, we review three specific income-focused portfolio strategies, including monster big yields, dividend growth investing, and build-your-own income. Next, we dive into the details on two monster big-yield closed-end funds (“CEFs”) from PIMCO (PDI and PDO). After comparing these two funds in detail (including the 7 things we always consider when evaluating CEFs) we conclude with our strong opinion on which one is better, and how they fit (or do not fit) into our prudently diversified High Income NOW portfolio.
PDI: Attractive 14% Yield, Big Hidden Costs
PIMCO’s Dynamic Income Fund (PDI) is popular among income-focused investors, and it should be. It offers big monthly distribution payments (that have increased over time), and it occasionally pays additional special dividends too. Plus, the fund is managed by a world-class company, PIMCO. However, there are significant costs, both implicit and explicit. In this report, we weigh the fund’s attractive qualities against its various costs, and then conclude with our strong opinion on investing.
Big Yield Bond CEFs: Is It Safe To Invest? (Interest Rate Risk)
Income-focused investors love big-yield bond CEFs because of their large distributions payments, often paid monthly. But if you’ve been following along, you know most of them (i.e. the popular PIMCO and BlackRock bond CEFs) have been feeling a lot of pain over the last year (because as rates have gone up, bond prices have gone down). Granted some investors don’t care about price as long as the income keeps rolling in, but it really does matter. In this report, we provide an update on three popular Bond CEFs (two from PIMCO and one from BlackRock), and share our views on whether the interest rate environment is signaling an “all clear” sign. We conclude with our strong opinion on investing.
Bond CEFs: Prices, Premiums and Interest Rates
A quick note to share some updated data and commentary on a handful of popular big-yield bond CEFs from PIMCO and BlackRock. This note may be of particular interest to those following our High Income NOW portfolio. For starters, here is a look at the latest movement in premiums and discounts (versus NAV).
Update: PDI and PTY: Ugly ROC, Buyer Beware
UPDATE: Unbeknownst to many investors, PIMCO’s big-yield funds, PDI and PTY, are including a significant return of capital in their beloved big distributions (and it’s largely hidden through derivative swaps transactions). We reached out to PIMCO for comment, and found their replies (included in this report) concerning. These two big-yield PIMCO funds are simply not as good as many investors believe. Caveat emptor.
PDI and PTY: Ugly ROC, Buyer Beware
The PIMCO Dynamic Income Fund (PDI) and PIMCO Corporate & Income Opportunity Fund (PTY) are absolute favorites among many income-focused investors. They both have long track records (one decade and two decades, respectively) of successfully delivering big monthly income payments (they currently yield 13.5% and 10.6%, respectively) and because they’ve sourced all that big income over the years without the return of capital (“ROC”) that plagues so many other high-income funds. However, a look under the hood reveals that these two PIMCO trophy funds have, in fact, been using ROC to fund their distributions (despite marketing materials that suggest otherwise). In this report, we review all the important details and then conclude with our strong opinion on investing—caveat emptor!
PIMCO CEFs: Special Year-End Distributions
To the delight of many income investors, PIMCO announced Monday that a handful of its big-yield bond funds will be offering special year-end distributions. Here is the press release from PIMCO. And you can read our analysis on these PIMCO funds here here and here.
PIMCO CEF: The Big Premium, I'll Be Back, 10.1% Yield
Often an income-investor favorite, 2021 continues to be an interesting year for PIMCO’s lineup of big-distribution, monthly-pay, fixed-income CEFs. We’ve seen the launch of a new winner, a distribution cut from a perennial favorite, and now an imminent merger and sharply declining premiums for three classic PIMCO funds. In this report, we focus on one in particular, its 10.1% monthly distribution and its significantly shrinking price premium (versus NAV) as the big merger looms imminent. And regarding its once large premium, it is our opinion, as Arnold Schwarzenegger’s Terminator character once said, I’ll be back! We conclude with some important takeaways on who might want to invest and how.
PIMCO's Big-Yield CEFs: Cracks in the Dam? (PCI) (PDI) (PKO)
Income-hungry investors flock to PIMCO’s fixed-income closed-end funds for multiple reasons, including the big yields (often in excess of 9.0%), monthly payments, and sometimes even the ridiculously low prices (as we wrote about here and here). And while some investors are reassured by PIMCO’s track record of no distribution cuts in several of their most popular funds (for example (PDI), (PCI) and (PKO)), there is a lot more going on under the hood, and the recently proposed merger between these funds could be a little window dressing by the firm as the track of no distribution cuts may be in jeopardy. In this report, we pull back the curtains on these funds to reveal a little bit about how the sausage is made, and then conclude with our opinion on whether they still make for good investments, or if it is time to move on to new opportunities.
Helicopter Fed: Top 10 mREITs and Bond CEFs (Huge Yields, Discounted Prices)
This article shares our Top 10 compelling mREITs and Bond CEFs. They trade at significant discounts to their book values and are being supported, to varying degrees, by the actions of the US Fed. The Fed is pumping an unlimited amount of liquidity into the system by buying the types of bonds these compelling mREITs and CEFs own.
PIMCO Bond CEFs: Are You Betting Against The Fed?
Many popular PIMCO closed-end funds (CEFs) have sold off particularly hard as investors fear the potential impacts of a coronavirus-driven recession. Further, large CEF premiums versus net asset values (NAVs) have evaporated into unusually large discounts as selling pressure has been intense. Further still, the price declines have been exacerbated by a drying up of liquidity in the bond markets. And even though the US Fed has dramatically increased its quantitative liquidity easing in the treasury and agency Mortgage Backed Securities (MBS) repo markets, just this week it announced that it will “be moving for the first time into corporate bonds, purchasing the investment-grade securities.” To some investors, the Fed’s essentially unlimited buying power is terrifying, and to others it is highly reassuring. Will you be betting against the Fed?
3 PIMCO Bond CEFs: Huge Yields (8.1%, 8.3%, 9.8%) Paid Monthly
If you are an income-hungry investor, PIMCO offers a variety of low-beta, fixed-income Closed-End Funds (“CEFs”) that are worth considering. In this report, we analyze three of them, multi-sector funds (PFL) (PHK) and (PCI), considering sector allocations, pricing, distribution prospects, leverage, and finally conclude with our opinion on which one of them offers the most attractive balance of risks versus rewards for income-focused investors.