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Pimco’s Bill Gross favors his closed-end funds over Total Return Fund

Bill Gross of Pacific Investment Management Co. LLC likes several of its closed-end funds — perhaps more than his flagship Total Return open-end-bond fund.

Bill Gross of Pacific Investment Management Co. LLC likes several of its closed-end funds — perhaps more than his flagship Total Return open-end-bond fund.
“I work like a dog” on Pimco’s closed-end funds, he said, speaking this week to an investor group in Costa Mesa, Calif. “They’re the first thing I look at, at 5:30 in the morning … They’re watched very closely.”
Mr. Gross, managing director and chief investment officer at Pimco, said he’d personally rather not pay the upfront load charged on the Total Return fund, another factor that makes the closed-end funds appealing.
The Pimco closed-end funds Mr. Gross mentioned — the Pimco Corporate Income (PCN), Corporate Opportunity (PTY), Floating Rate Income (PFL) and Floating Rate Strategy (PFN) funds — are all “overvalued,” said Cecilia Gondor, executive vice president at Thomas J. Herzfeld Advisors Inc., a closed-end-fund specialist with about $100 million under management.
All of the funds trade at premiums to net asset value, Ms. Gondor said, ranging from 5.4% to 13.5%.
Typically, most closed-end funds trade at a discount.
The Pimco funds benefit from the “celebrity factor” Mr. Gross brings to the table, she said.
Discounts overall on closed-end funds now average just 4.4%, according to a report this month from Herzfeld Advisors.
The “historically narrow” discount is being driven by income-seeking investors who don’t always understand that many closed-end bond funds offer high yields because of leverage, the report said.
The four Pimco funds cited by Mr. Gross are leveraged 30% or more, Ms. Gondor said.
Meanwhile, despite Mr. Gross’ personal views, the Pimco Total Return fund, which has $186 billion in assets, remains a favorite with advisers.
“We’re getting $300 million a day” into the fund, Mr. Gross said at the investor meeting. “It’s staggering.”
Pimco has considered closing the fund, but Mr. Gross said that as long as the fund group feels that it can do better than competitors, it will keep the fund open.