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Post by Fearchar on Feb 4, 2023 2:46:05 GMT
I've expressed concern with the risk of leverage that CEFs such as PDO uses.
PIMCO has sophisticated strategies to achieve their distributions, but as far as I know, it's not magic.
That is they are subject to the similar costs of leverage which is what the FED is seeking to reduce by raising rates.
PDO closed at $14.35 with a NAV of $13.76.
Current distribution is equivalent to 10.70% at market prices.
That equates to 10.7*(14.35/13.76) or about 11.16% at NAV.
So, how do they do that?
The High Yield index is currently 7.56%.
The FED fund rate is 4.58%.
I really don't see how their cost of leverage could be significantly lower than the FED.
That is if one were to buy more high yield funds at 7.56%, one would have to pay 4.58% in leverage costs.
So, the net of 100% leverage would be 7.56-4.58 = 2.98%
But 11.16-7.56=3.60%
100% leverage would not be enough.
They would need 100*3.6/2.98 = 121% leverage.
Now, PIMCO doesn't claim to be using anywhere near that amount of leverage.
However, neither are they covering distributions very well.
PIMIX is another story.
Current distribution is 6.39%.
With rising rates they along with most fixed income funds took a beating last year.
However, rates are nearly stabilized, so the risk of rising rates is subdued.
6.39% is less than the high yield index.
6.39/7.56=0.85. Or they are yielding about 85% of the high yield index.
A month ago it was even lower.
But that's history.
At least for now, the situation isn't outrageous or highly dependent on cheap leverage or magic.
They are taking on more risk than a 30 year mortgage 6.09% and a lot more than a BBB bond 5.17%.
But less so than high yield.
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Post by yogibearbull on Feb 4, 2023 11:46:49 GMT
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Post by steelpony10 on Feb 4, 2023 16:37:13 GMT
Fearchar , Try doing the New York Times game Wordle each day. I use all the facts and logic I can muster and score at or slightly above the worldwide average of 3.66. There’s a certain amount of randomness in life as you know. I agree 100% with your logic. But we hold both. My bow to the random events I have no control over. A large leverage is a cause for some caution so maybe a 50/50 allocation?
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Post by Fearchar on Feb 4, 2023 16:41:47 GMT
steelpony10, Entirely possible that I've made another mistake. I'm sure it won't be my last!
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Post by Chahta on Feb 4, 2023 16:58:55 GMT
I've expressed concern with the risk of leverage that CEFs such as PDO uses. PIMCO has sophisticated strategies to achieve their distributions, but as far as I know, it's not magic. That is they are subject to the similar costs of leverage which is what the FED is seeking to reduce by raising rates. PDO closed at $14.35 with a NAV of $13.76. Current distribution is equivalent to 10.70% at market prices. That equates to 10.7*(14.35/13.76) or about 11.16% at NAV. So, how do they do that? The High Yield index is currently 7.56%. The FED fund rate is 4.58%. I really don't see how their cost of leverage could be significantly lower than the FED. That is if one were to buy more high yield funds at 7.56%, one would have to pay 4.58% in leverage costs. So, the net of 100% leverage would be 7.56-4.58 = 2.98% But 11.16-7.56=3.60% 100% leverage would not be enough. They would need 100*3.6/2.98 = 121% leverage. Now, PIMCO doesn't claim to be using anywhere near that amount of leverage. However, neither are they covering distributions very well. PIMIX is another story. Current distribution is 6.39%. With rising rates they along with most fixed income funds took a beating last year. However, rates are nearly stabilized, so the risk of rising rates is subdued. 6.39% is less than the high yield index. 6.39/7.56=0.85. Or they are yielding about 85% of the high yield index. A month ago it was even lower. But that's history. At least for now, the situation isn't outrageous or highly dependent on cheap leverage or magic. They are taking on more risk than a 30 year mortgage 6.09% and a lot more than a BBB bond 5.17%. But less so than high yield. PIMIX is leveraged as well. |
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Post by chang on Feb 4, 2023 17:17:25 GMT
PIMIX is leveraged as well. Curious, how much leverage? |
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Post by Fearchar on Feb 4, 2023 17:41:30 GMT
I sure it's an exotic type of leverage.
Technically, it doesn't need to be leveraged.
So, the leverage cost should or at least could be really low.
My impression is that they are also working to minimize risk.
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Post by Chahta on Feb 4, 2023 17:42:53 GMT
I saw -25% Cash @ M*.
EDIT: Corrected my statement.
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Post by Deleted on Feb 4, 2023 17:54:04 GMT
PIMIX is leveraged as well. Curious, how much leverage? From the prospectus: "The Fund may invest, without limitation, in derivative instruments, such as options, futures contracts or swap agreements, or in mortgage- or asset-backed securities, subject to applicable law and any other restrictions described in the Fund’s prospectus or Statement of Additional Information. The Fund may purchase or sell securities on a when-issued, delayed delivery or forward commitment basis and may engage in short sales. The Fund may, without limitation, seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buybacks or dollar rolls). The Fund may also invest in contingent convertible securities and up to 10% of its total assets in preferred securities." |
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Post by Fearchar on Feb 4, 2023 17:55:52 GMT
Interesting; when I put PIMIX into TDA's comparison app; it found the following funds: Over past 3 years, LFLSX and MWFEX performed a bit better than PIMIX.   Different story over past year and YTD:  |
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Post by newtecher on Feb 4, 2023 17:56:51 GMT
I believe PDO is the worst performing (NAV basis) of all PIMCO go-anywhere CEFs since its inception (almost exactly 2 years ago). It is down about 11% over that period compared to PIMIX's -2% and PDI's -3%. I'm surprised so many people seem to like it on this board.
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Post by Fearchar on Feb 4, 2023 17:56:54 GMT
Can only add 3 files to a post. So, here is YTD:  |
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Post by marpro on Feb 4, 2023 18:00:42 GMT
I saw -12.4% Cash. M* does not show it but I was corrected by FD1000 a few days ago when I mentioned M* not showing leverage. Trying to find the post in the great sea of posts. Check PDO here. Your mortgage was almost 800% leverage, when you bought your home. It is paid off now. It is worth four times what you paid. I love leverage because it is OPM, usually at cheaper rates. I make money using OPM.
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Post by Deleted on Feb 4, 2023 18:48:28 GMT
Curious, how much leverage? From the prospectus: "The Fund may invest, without limitation, in derivative instruments, such as options, futures contracts or swap agreements, or in mortgage- or asset-backed securities, subject to applicable law and any other restrictions described in the Fund’s prospectus or Statement of Additional Information. The Fund may purchase or sell securities on a when-issued, delayed delivery or forward commitment basis and may engage in short sales. The Fund may, without limitation, seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buybacks or dollar rolls). The Fund may also invest in contingent convertible securities and up to 10% of its total assets in preferred securities." From Investopedia: "By law, the maximum amount of leverage a mutual fund can use is 33.33% of its portfolio value. If the portfolio is valued at $1 million, it may borrow up to $333,333 to increase its buying capacity. However, if assets in its portfolio fair poorly and the fund loses value, then it must reduce its leverage to remain within the required limits." |
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Post by Fearchar on Feb 4, 2023 19:09:05 GMT
I saw -12.4% Cash. M* does not show it but I was corrected by FD1000 a few days ago when I mentioned M* not showing leverage. Trying to find the post in the great sea of posts. Check PDO here. Your mortgage was almost 800% leverage, when you bought your home. It is paid off now. It is worth four times what you paid. I love leverage because it is OPM, usually at cheaper rates. I make money using OPM.
Very true when real interest rates are negative. |
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Post by richardsok on Feb 4, 2023 19:13:36 GMT
I believe PDO is the worst performing (NAV basis) of all PIMCO go-anywhere CEFs since its inception (almost exactly 2 years ago). It is down about 11% over that period compared to PIMIX's -2% and PDI's -3%. I'm surprised so many people seem to like it on this board. We like it on this board AFTER it collapsed in price and after it exhausted its EOY tax-loss selling in December. Last summer when it was behaving poorly, opinions were decidedly mixed where the bottom would be. |
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Post by newtecher on Feb 4, 2023 19:26:50 GMT
I believe PDO is the worst performing (NAV basis) of all PIMCO go-anywhere CEFs since its inception (almost exactly 2 years ago). It is down about 11% over that period compared to PIMIX's -2% and PDI's -3%. I'm surprised so many people seem to like it on this board. We like it on this board AFTER it collapsed in price and after it exhausted its EOY tax-loss selling in December. Last summer when it was behaving poorly, opinions were decidedly mixed where the bottom would be. So just based on short term (~1 month) momentum in price, which is mostly due to a large swing from 3% discount to 3% premium? Its NAV performance is still mediocre and I do not see why the premium would go up higher. |
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Post by marpro on Feb 4, 2023 19:56:45 GMT
Check PDO here. Your mortgage was almost 800% leverage, when you bought your home. It is paid off now. It is worth four times what you paid. I love leverage because it is OPM, usually at cheaper rates. I make money using OPM.
Very true when real interest rates are negative. Wrong. I paid 9.5% mortgage rate then back in 1986. My first one was 11.5% in 1983, and a note with a balloon of 5 years at 11%. But, I paid the balloon in one year. It all depends on how you allocate your resources. Banks still give your house loan with 80/20 mortgage. We are looking at a possibility of buying a second home now because the prices are cheaper. When the interest rates go back down, we can refinance at a lower rate later. |
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Post by newtecher on Feb 4, 2023 21:58:21 GMT
Curious, how much leverage? From the prospectus: "The Fund may invest, without limitation, in derivative instruments, such as options, futures contracts or swap agreements, or in mortgage- or asset-backed securities, subject to applicable law and any other restrictions described in the Fund’s prospectus or Statement of Additional Information. The Fund may purchase or sell securities on a when-issued, delayed delivery or forward commitment basis and may engage in short sales. The Fund may, without limitation, seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buybacks or dollar rolls). The Fund may also invest in contingent convertible securities and up to 10% of its total assets in preferred securities." PIMIX holdings (as of 09/30/2022) are available on PIMCO website as an excel file. The "BORROWINGS AND OTHER FINANCING TRANSACTIONS" lists some repurchase agreements and short sales but the amount to only about 1% of the NAV, basically negligible. Back in 2019, it was about 40% of net assets. |
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Post by anitya on Feb 4, 2023 23:19:49 GMT
PIMIX is leveraged as well. Curious, how much leverage? , I do not currently own PIMIX but when owned it, I think it used to carry about 33% (or 50% of net assets) leverage. The fund manager can achieve the effect of leverage through derivates (and / or going long-short), without an actual borrowing but PIMCO uses all tools (to leverage) in a cost effective manner. |
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Post by richardsok on Feb 5, 2023 1:23:38 GMT
We like it on this board AFTER it collapsed in price and after it exhausted its EOY tax-loss selling in December. Last summer when it was behaving poorly, opinions were decidedly mixed where the bottom would be. So just based on short term (~1 month) momentum in price, which is mostly due to a large swing from 3% discount to 3% premium? Its NAV performance is still mediocre and I do not see why the premium would go up higher. I understand, newt. I'm not pumping the fund now. I made my buys late December. Now I'm thinking of lightening. Depends what we see when the next coverage numbers come out. If I bought at 12% yield on cost and the worst happens -- say they cut distributions by about 20% -- yes, I'll give up my short term gains, but I'll STILL be getting about 10% yield on cost in tax-sheltered and I had the big special dividend. I've done worse. Much worse. |
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Post by steadyeddy on Feb 5, 2023 4:15:13 GMT
I always considered PIMIX more like a Wellington 60/40 fund (or at least a 40/60 balanced fund) just because of the black magic and likely leverage PIMCO produces with it.
It is clearly not a simple bond fund as we all know. But its heft/size along with PIMCO reputation in dealing with private placements of bonds, it is a unique mutual fund.
As for PDO, I sold it in 2022 for TLH.
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Post by chang on Feb 5, 2023 15:01:34 GMT
Interesting how tricky it seems to be to ascertain PIMIX leverage. Answers here vary from 0% to 33%. I knew that PIMIX uses some amount of leverage, and figured it was probably 10-20%. I assume leverage cost correlates with interest rates, so I am guessing they will be getting more selective with leverage now, as rates have gone up. (Ironically, leverage was probably cheapest during the recent bond crash, when you didn't want to own them.)
My decision to purchase PIMIX recently was basically an "outsourcing" decision. Everone knows that PIMCO generally knows what they're doing. The fund's record speaks for itself. I expect it to be a go-anywhere fund that uses every tool in the box, including shorts, derivatives and leverage. I consider it to be "aggressive" for FI, and I barbell it with more conservative stuff. I've given my views on FI CEFs before, so I won't repeat them (but obviously I prefer PIMIX over the various CEF options).
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Post by newtecher on Feb 5, 2023 15:37:24 GMT
Interesting how tricky it seems to be to ascertain PIMIX leverage. I do not think it is tricky. It just varies in time. |
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Post by yogibearbull on Feb 5, 2023 15:38:28 GMT
I won't repeat the comment on regulatory leverage (on total assets) and holders' leverage (on net assets).
I doubt that PIMIX leverage was ever high. There is some because the fund uses derivatives to adjust duration, and it is too easy to create leverage with derivatives.
Just look that the ER components. PIMIX ER of 51 bps includes 1 bps for interest (in Other). PDI ER of 315 bps includes 118 bps for interest (shown separately, not in Other). So, PIMIX leverage is quite mild, while PDI leverage is high (near max allowed).
I have also pointed out before that PDO (01/2021- ) and PAXS (01/2022- ) are newer types of CEFs with term-structures but are similarly managed as PDI; all share Ivascyn + Murata. Looking at their premiums/discounts, there can be good trades among them. Most investors just look at PDO and PAXS as being too new and they suffer for that in the marketplace.
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Post by Deleted on Feb 5, 2023 16:26:24 GMT
I bought PDO when it was released and no one else seemed to be interested. I sold PDO when PAXS was released and bought PAXS. Now there is interest in PAXS and I sold it last week based on its performance and distribution use of ROC (small amount now, but who knows if a trend is developing). I bought PTY Jan. 4th this year, and have decided that I want to keep the two PIMCO CEFs, PTY and PDI, (PDI is a long term holding).
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Post by newtecher on Feb 5, 2023 16:37:44 GMT
I sold PAXS last week based on its performance and distribution use of ROC (small amount now, but who knows if a trend is developing). Where did you ROC in PAXS distributions? Cefconnect shows zero roc even for the upcoming distro. |
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Post by Deleted on Feb 5, 2023 17:24:43 GMT
I sold PAXS last week based on its performance and distribution use of ROC (small amount now, but who knows if a trend is developing). Where did you ROC in PAXS distributions? Cefconnect shows zero roc even for the upcoming distro. From PIMCO UNII Report as of Nov. 30th distribution ($0.45/share) estimated ROC fiscal year (June 30). The actual amount won't be known until the end of the current fiscal year. PAXS total leverage at the time was reported as approx. 46%. |
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Post by newtecher on Feb 5, 2023 17:45:38 GMT
Where did you ROC in PAXS distributions? Cefconnect shows zero roc even for the upcoming distro. From PIMCO UNII Report as of Nov. 30th distribution ($0.45/share) estimated ROC fiscal year (June 30). The actual amount won't be known until the end of the current fiscal year. PAXS total leverage at the time was reported as approx. 46%. The most recent excel sheet shows zero estimated ROC for PAXS. Also, the actual ROC amounts have to be established at the end of calendar year in order to generate 1099-DIV forms by Jan 31 (the government deadline). |
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Post by steadyeddy on Feb 6, 2023 12:44:54 GMT
After dabbling in the PIMCO CEFs last year and gathering tax loss harvest, I decided that PIMIX is risky enough for me from the PIMCO suite of bond products...😂
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