Two Pimco offerings dragged down in rout

AUG 19, 2013
The recent bond market sell-off has left shares of two of Pacific Investment Management Co. LLC's closed-end funds trading at fire sale prices. Closed-end funds have a fixed number of shares outstanding. Therefore, when a fund is popular, the shares tend to trade at a premium to net asset value. When they are unpopular, they trade at a discount. With investor sentiment turning away from bond funds, which have seen six straight weeks of outflows, shares of the $282 million Pimco Income Strategy Fund (PFL) and the $587 million Pimco Income Strategy Fund II (PFN) are trading at their biggest discounts in three years. The drop in price could signal a good buying opportunity for income-hungry investors, wrote Cara Esser, a closed-end fund analyst at Morningstar Inc. Shares of the Pimco Income Strategy Fund are trading at a 2.5% discount to the fund's net asset value and shares of Pimco Income Strategy Fund II are trading at a 2% discount. Over the past three years, the funds' shares have traded at premiums of 6.4% and 4%, respectively, according to Morningstar. Both funds have a distribution rate of more than 9%. Bond guru Bill Gross was named manager of the funds in mid-2009 and shortly thereafter, the funds' mandates were expanded to be more flexible. Since the funds adopted a go-anywhere approach in early 2010, their performance had been on a tear. The Pimco Income Strategy Funds had annualized three-year returns of around 16% as of July 8, according to Morningstar. The funds' closed-end peers had an average three-year annualized return of 12% over the same time. The average open-end fund had gained 7%. One of the reasons for the supersized performance is that Pimco isn't afraid to use leverage to boost returns. Both funds have more than 20% leverage, which may scare off some investors, according to Morningstar. “Pimco's extensive use of leverage and derivatives in the past indicates a willingness to put capital at risk for potentially improved total return,” Ms. Esser wrote. “These funds are not for the faint of heart.” [email protected] Twitter: @jasonkephart

Latest News

SEC bars ex-broker who sold clients phony private equity fund
SEC bars ex-broker who sold clients phony private equity fund

Rajesh Markan earlier this year pleaded guilty to one count of criminal fraud related to his sale of fake investments to 10 clients totaling $2.9 million.

The key to attracting and retaining the next generation of advisors? Client-focused training
The key to attracting and retaining the next generation of advisors? Client-focused training

From building trust to steering through emotions and responding to client challenges, new advisors need human skills to shape the future of the advice industry.

Chuck Roberts, ex-star at Stifel, barred from the securities industry
Chuck Roberts, ex-star at Stifel, barred from the securities industry

"The outcome is correct, but it's disappointing that FINRA had ample opportunity to investigate the merits of clients' allegations in these claims, including the testimony in the three investor arbitrations with hearings," Jeff Erez, a plaintiff's attorney representing a large portion of the Stifel clients, said.

SEC to weigh ‘innovation exception’ tied to crypto, Atkins says
SEC to weigh ‘innovation exception’ tied to crypto, Atkins says

Chair also praised the passage of stablecoin legislation this week.

Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest
Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest

Maridea Wealth Management's deal in Chicago, Illinois is its first after securing a strategic investment in April.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.