Why is PDI’s yield so high? Why is it’s price still low?

[rumi]

PDI's relatively high yield indicates there are more risks to it than some of the other PIMCO CEFs. What risks are those?

Even the brand new PIMCO CEFs such as PDO and PAXS have a lower yield than PDI. Why's this?

Thanks.

[Deleted]

A more accurate question is why PDI is priced currently at a premium of 10.3% when PDO is priced at 1.5% and PAXS at -1.9%  ... and their portfolios and leverage don't appear too dissimilar IMO.  And from this some (most?) would think that PDI is priced too high, not too low.  Since the CEF price is set by the (possibly irrational) market and since PIMCO's internal actions affecting the CEF NAV too often are unclear or unknown ... the best answer may be "it's a mystery".  And thus your guess is as good as mine.

For more/better CEF info, look elsewhere .... such as (and there's so much more than this)

www.fidelity.com/learning-center/investment-products/closed-end-funds/distributions

seekingalpha.com/article/4567198-pimco-cef-update-coverage-falls-recapping-our-strategy

For CEF investing IMO, you have to work ..... and maybe even choose to pay for more knowledge and understanding.

edit:  I'll go further than I normally do to type that, for PDI, I note the 1.8 1-year Z-score on its 10.3% premium and for that (and other reasons too) have reduced my investment in it.

--- Frank

[retiredat48]

Hi rumi...CEFs like PDI are difficult to get "under the hood" and fully understand.

But here is something I suspect few have thought of.

PDI owns some mortgage backed securities. A year ago these mortgages had rates of let's say 3.5%. The average homeowner owns a mortgage of 7 years...which ties to duration. PDI borrows short term at let's say 1%, and leverages up the mortgage holding amount...thus the higher yield.

However, comes a time the fed raises rates a lot, quickly, and mortgage rate goes to 7%. 3.5% mortgage now not so attractive. Prices fall. PDI has to "mark to market", meaning lowering the NAV price.

However, we know when the mortgage is repaid, there is no "reduced price." It must be paid 100% in full. So PDI will be paid back far more than current market values. Thus there is a built in capital gain within PDI holdings...at maturity.

However also, at 7% rates, those holding 3.5% mortgages are "locked in" and feel they will not sell unless required to (like moving). So the "duration" of such mortgages increases...thus PDI will have to wait longer to roll over its money. If PDI has to refinance short term borrowing rates (at higher rates) it will not make as much money on the leverage situation. (A bad impact).

However in the long run, the mortgages will be paid off, money rolled over into higher rated mortgages, and the fund goes on. PDI thus could keep paying the special December additional dividend, like the 3% paid this year (a huge amount).

Thus the premium.

R48

[johnsmith]

Jan 14, 2023 5:52:05 GMT rumi said:

PDI's relatively high yield indicates there are more risks to it than some of the other PIMCO CEFs. What risks are those?

Even the brand new PIMCO CEFs such as PDO and PAXS have a lower yield than PDI. Why's this?

Thanks.

PDI has a long 10 year history of increasing distribution along with many year end specials.

That’s why the premium.

[marpro]

I have doubled my share count in PDI in less than a year by moving some cash from equity and due to reinvestment. I am still buying every month with my SS money. People paid 30% premium for PDI just three years ago, when I was buying PCI shares at 10% premium (You can check the history). It is a long-running CEF with a good track record, whereas PAXS and PDO are newbies with a term-limit. steelpony10 knows more about it. 10% premium for PDI is reasonable IMHO, at the least not bad. I also wait for the price to be reasonable before I buy. I am not a trader as some do, but have been accumulating shares.

Add/Edit: I will not be distracted by some “experts” from SA or other sources. Have an eye on the ball for a long term.

[johnsmith]

I’d say the team that manages PDI, since they also manage PDO / PAXS

most likely these CEFs will do well too.

The current results seem to indicate so.

[marpro]

Jan 14, 2023 22:06:30 GMT johnsmith said:

I’d say the team that manages PDI, since they also manage PDO / PAXS

most likely these CEFs will do well too.

The current results seem to indicate so.

Yes, the same team.

But, the newbies do not have the track record and stuck with higher leverage costs for a while at the least. Besides, they have a 10-year term, unlike PDI. So, I am not excited by PDO/PAXS. Otherwise, I would be buying those also because they are cheaper that PDI. In fact, that is the point of the OP also.

[johnsmith]

Jan 14, 2023 22:44:08 GMT marpro said:

Jan 14, 2023 22:06:30 GMT johnsmith said:

I’d say the team that manages PDI, since they also manage PDO / PAXS

most likely these CEFs will do well too.

The current results seem to indicate so.

Yes, the same team.

But, the newbies do not have the track record and stuck with higher leverage costs for a while at the least. Besides, they have a 10-year term, unlike PDI. So, I am not excited by PDO/PAXS. Otherwise, I would be buying those also because they are cheaper that PDI. In fact, that is the point of the OP also.

I’d say PAXS is more interesting; it has a wider mandate, can go to emerging market bonds etc

[marpro]

"I’d say PAXS is more interesting; it has a wider mandate, can go to emerging market bonds etc "

I will check it out. Thanks.

[richardsok]

I believe PDO & PDI don't have as much interest rate risk as supposed. yes, they are leveraged to about 180-190% but 35-40% of PDO's positions are maturing in 3-5 years; a bit less for PDI.... and I believe we may be close to peak mortgage interest rates. Am holding very large recently purchased allocations in PDI, PDO and PAXS for income and using PGP as a trading vehicle.

[richardsok]

Jan 14, 2023 22:44:08 GMT marpro said:

Jan 14, 2023 22:06:30 GMT johnsmith said:

I’d say the team that manages PDI, since they also manage PDO / PAXS

most likely these CEFs will do well too.

The current results seem to indicate so.

Yes, the same team.

But, the newbies do not have the track record and stuck with higher leverage costs for a while at the least. Besides, they have a 10-year term, unlike PDI. So, I am not excited by PDO/PAXS. Otherwise, I would be buying those also because they are cheaper that PDI. In fact, that is the point of the OP also.

But PDO's monthly distributes less aggressively than PDI.   During all of '22 PDO's terrific  UNII accumulation outstripped the others, yet many were beaten down  to compelling levels, IMO.  I bought hard in December and am now watching the rally. Textbook EOY tax-loss selling + "January Effect" action.

[yogibearbull]

PDO (2021- ) and PAXS (2022- ) have newer term-structures. These will be redeemed at NAV in 12.0-13.5 years for those who to redeem at NAV. So, their discounts will disappear. They are also newer, so it took a while for their distributions to stabilize.

PDI is much older (2012- ) although it had a merger event not too long ago when former PKO and PCI were folded into it. Unlike PDO and PAXS, PDI is a forever CEF, never to mature (well, so long as Pimco exists or decides to keep PDI going).

Besides these structural differences, PDI, PDO, PAXS are similarly managed and share key managers (Ivascyn, Murata). There is good trading opportunity among them.

[gman57]

Jan 15, 2023 1:48:08 GMT yogibearbull said:

PDO (2021- ) and PAXS (2022- ) have newer term-structures. These will be redeemed at NAV in 12.0-13.5 years for those who to redeem at NAV. So, their discounts will disappear. They are also newer, so it took a while for their distributions to stabilize.

PDI is much older (2012- ) although it had a merger event not too long ago when former PKO and PCI were folded into it. Unlike PDO and PAXS, PDI is a forever CEF, never to mature (well, so long as Pimco exists or decides to keep PDI going).

Besides these structural differences, PDI, PDO, PAXS are similarly managed and share key managers (Ivascyn, Murata). There is good trading opportunity among them.

Ok, they are structured. What stops the managers or board from changing them to a forever CEF with a simple vote?  Just wondering? Gman57 wanders off to read more about PDO....

[yogibearbull]

gman57, I have posted on this for 1+ year. I have read through several prospectuses of these term-structure CEFs and didn't find loopholes to stop investors from cashing out at NAV at final termination date in 13.5 years. A smaller fund of 25% or less AUM may continue for those who want to hang on. Please report your findings here too.
big-bang-investors.proboards.com/thread/1086/newer-cefs-older

[gman57]

Yes, I remember you posting about it before but unfortunately I didn't pay attention like I should have. Thanks for the link.