PIMIX Holdings & Hidden Risk

[steadyeddy]

PIMIX (and PONAX) are substantial holdings in my portfolio. Thus I worry about hidden risks in it.

This thread is to elaborate on it and seek wise opinions from the forum here.

Here is an attachment from Fidelity's eMoney.. and the amount of shorting in both bonds and ST/cash is rather surprising.



Interested in your feedback.

[rhythmmethod]

Since no one responded, I'll weigh in. PIMIX is my largest holding. My CB is $9.7. I have received 10s of thousands in distribution in addition. I just recently turned on reinvest. When I worry about the hidden unknowns, I ask myself:

1. Am I hiring the management because I think they are among the best FI minds available?

2. Do these managers know more than I do about the specifics of what they are doing?

3. Will they make some mistakes?

4. Will they likely correct the mistakes?

5. Will I fully understand what they are doing under the hood?

6. Do I need to?

7. Is the juice worth the squeeze?

Answers to 1-4 are YES
......................5-6 NO
........................7 YES

Just my perspective. Take care, - RM

[habsui]

Nov 25, 2023 19:58:27 GMT rhythmmethod said:

Since no one responded, I'll weigh in. PIMIX is my largest holding. My CB is $9.7. I have received 10s of thousands in distribution in addition. I just recently turned on reinvest. When I worry about the hidden unknowns, I ask myself:

1. Am I hiring the management because I think they are among the best FI minds available?

2. Do these managers know more than I do about the specifics of what they are doing?

3. Will they make some mistakes?

4. Will they likely correct the mistakes?

5. Will I fully understand what they are doing under the hood?

6. Do I need to?

7. Is the juice worth the squeeze?

Answers to 1-4 are YES
......................5-6 NO
........................7 YES

Just my perspective. Take care, - RM

+1

[FD1000]

Let's start from the obvious, PIMIX is a good fund.
Let's go deeper. We used to discuss it a lot until 2018, I was a huge fan of PIMIX and held it at a huge % about 7-8 years until 01/2018.
PIMIX has been a black box more than others for years. These were the glory days of PIMIX, one of the best ever bond funds, it beat the SP500 in several years. The income was amazing and the volatility/risk was low.
That run miracle was ended in 2018. PIMIX AUM grew too much to about 125.5 Bill now, it was higher years ago, that means the original successful PIMIX that invested at a high % in cheap, broken mortgages is gone. 
PIMIX became "normal". It's difficult to manage all that money and Pimco isn't going to close it.  Since 2018 PIMIX invested about 15-30% in HY + EM which are riskier.
Years ago the ER was over 1% because of leverage, but it's back to 0.5% = no or low leverage.
The best way to learn about PIMIX is to go to the source = Pimco site (www.pimco.com/en-us/investments/mutual-funds/income-fund/inst?gad_source=1) and click on document, then download stat. We can see that PIMIX is back at a high % in mortgages but I'm sure these are not the same ones from years ago.
I'm not going to analyze the holdings and what is the -30% in short duration.

Now we have to look at other options.

1) Is performance the most important? you have stock for that
2) Is income important regardless? PIMIX income is above 7%, RCTIX is higher(AUM=550 million), and RSIIX/RSIVX is higher too (AUM=390 mil).  RCTIX is another Multi sector fund, as PIMIX is.  RSIIX is a unique fund mostly in HY.
3) I like to own bond funds with the great risk/reward + good income. Both have better performance + lower SD/risk for 1-3 years + current higher income.  See one year chart(schrts.co/ayMauIAu) and change to 3. It's pretty easy to see the enormous volatility for PIMIX.
4) No manager can rely on past performance. Sometimes the new conditions do not work well with the fund/managers style.

Disclaimer: I don't own any of these funds and the above has no guarantees. 

Attachments:

[steadyeddy]

Nov 26, 2023 5:10:45 GMT FD1000 said:

Let's start from the obvious, PIMIX is a good fund.

FD1000, thanks for a detailed response. I edited your message to keep the words that I liked.

As long as PIMIX is a good fund I am willing to hold it as a B&H investor. I do notice that M* used to complain a lot about PIMCO's unwillingness in sharing portfolio details but during the last few years M* has been singing praise of PIMIX. 

Agree that the derivatives PIMCO uses are a bit opaque and I worry about counter-party risk for those derivatives. Credit-Suisse is absorbed by UBS, is UBS the counter-party here? Could they cause a rattle in the fund?

Thanks again.

[Birdman96]

I have been invested in PIMIX since 2017-18. It has consistently provided exceptional distributions on a monthly basis, which I kept/keep on reinvestment. However, the NAV has been sliding ever since and I’d found that the income did not offset the drop in total value. So rather than watch it continue to erode, I had reduced a 6-figure to a 5-figure investment with the hope that it would turn around. . I don’t understand how it maintains its asset level so high (~125b)? My best guess is that these investors see the fund as an annuity, which provides a steady paycheck. Yes, I get it, their mandate is “income,” and I’ve held on thinking the income would eventually offset the value drop. It has not. My bad. And just as the parable of the frog trusting the scorpion, I'm still invested in the fund.

[Chahta]

If you take the M* word for the fund holdings, they can be in error. M* indicates CBLDX has about 10% derivatives. I talk to the fund folks regularly and they have no idea what M* has listed as "derivatives". With more than 100% in a holding and high % shorting, there must be leverage. Since PIMIX is for income purposes, why even worry about NAV? There are easier ways to get 7% these days.

[yogibearbull]

steadyeddy, I don't recall any issues between M* and Pimco. You may be thinking of DoubleLine (DL) for which M* had Neutral ratings for a while BECAUSE, according to M*, DL refused to explain its complex strategies.

However, in M* portfolio classification, Pimco bond funds look strange. They are indeed black boxes to some extent as they aggressively use derivatives and short positions for duration control (not speculation, it may say). I think that they don't use those for their ETFs, but it's a fair game for their CEFs.

Chahta, CBLDX uses currency futures and those are clearly derivatives. Unclear what your discussion with them was, but they may also say that they use those for hedging some foreign currency exposure, but don't it for speculation.

[Chahta]

yogibearbull , I do not see anything listed as "currency futures" listed on their website holdings. I see "warrants" and "commercial paper". I asked them directly if the fund held derivatives. 

In 2020 when bonds tanked and were sold mercilessly, you indicated that "derivative losses may never recover". I have paid attention ever since.

Holdings

[yogibearbull]

Chahta, the very last entry, AFTER the Holdings list, shows several currency contracts. For some reason, futures and options are shown by funds outside of holdings list, but short positions (N/A here) are shown within the holdings. I suppose that is how the SEC wants it presented.

[steadyeddy]

Nov 26, 2023 13:49:17 GMT Birdman96 said:

I have been invested in PIMIX since 2017-18. It has consistently provided exceptional distributions on a monthly basis, which I kept/keep on reinvestment. However, the NAV has been sliding ever since and I’d found that the income did not offset the drop in total value. So rather than watch it continue to erode, I had reduced a 6-figure to a 5-figure investment with the hope that it would turn around. . I don’t understand how it maintains its asset level so high (~125b)? My best guess is that these investors see the fund as an annuity, which provides a steady paycheck. Yes, I get it, their mandate is “income,” and I’ve held on thinking the income would eventually offset the value drop. It has not. My bad. And just as the parable of the frog trusting the scorpion, I'm still invested in the fund.

Birdman96, agree that the NAV has taken a huge beating just like any other bond fund - I attribute that to the sharp increase in rates. I used to trade PIMIX during the descent in NAV - but of late grew the position to be my largest holding under the premise that we are at or near the end of this rate hike cycle. I may be wrong.

One thing I do see is that the volatility/SD of PIMIX has been lower than many other funds regardless of the rate environment.

[Chahta]

steadyeddy, “like any other bond funds” is not a fact. Look at OSTIX, CBLDX and RSIIX. I think it might be true for longer duration funds. PIMIX is closer to Core/Core Plus in duration.

[Birdman96]

steadyeddy - Agree about the SD, and I’ve kept a modest investment in the hopes it might recover some of my paper loses (which I know is foolish, but doing it anyway). I should have believed them when they listed only as an income fund (not including total return in identity). As Howard Marks has stated, “experience is what you got, when you didn’t get what you want.” I’ve been singing the song by “The Clash” about “staying or going” for some time. January will be decision time.

[Birdman96]

@chahta - “There are easier ways to get 7% these days.” Well, it’s not 7%, but much of my dry powder (from dropping out of bond funds earlier) has gone into t-bills at 5+%. Not shooting the lights out, but so long as I hold-on, no loss of value.

[steadyeddy]

Nov 26, 2023 15:20:01 GMT Chahta said:

steadyeddy , “like any other bond funds” is not a fact. Look at OSTIX, CBLDX and RSIIX. I think it might be true for longer duration funds. PIMIX is closer to Core/Core Plus in duration.

Chahta, fair point; I should have been more specific in that many core/core-plus bond funds corrected in NAV to accommodate higher interest rates. Thanks.

[junkster]

Hard to say anything negative on PIMIX. Since its inception in 2007 there were only two years where it didn’t beat its Morningstar benchmark. If there was anything lurking under the surface it would have manifested itself during the vicious bear market in bonds last year. It is and always has been a MBS fund - both agency and non agency. Its latest holdings as of October 31 show over 50% there. Very small amounts of 5% and 4% in emerging market debt and high yield corporates. Ivansyn bought non agency MBS for literally pennies on the dollar in 2007 and 2008. That explains its outsized returns in its earlier years topping 22% in 2012. It lost its outsized momentum in 2013 but continued be a star performer. It depends to a degree on the 10 year Treasury and hopefully that has topped recently.

[steadyeddy]

Nov 28, 2023 17:24:57 GMT junkster said:

Hard to say anything negative on PIMIX. Since its inception in 2007 there were only two years where it didn’t beat its Morningstar benchmark. If there was anything lurking under the surface it would have manifested itself during the vicious bear market in bonds last year. It is and always has been a MBS fund - both agency and non agency. Its latest holdings as of October 31 show over 50% there. Very small amounts of 5% and 4% in emerging market debt and high yield corporates. Ivansyn bought non agency MBS for literally pennies on the dollar in 2007 and 2008. That explains its outsized returns in its earlier years topping 22% in 2012. It lost its outsized momentum in 2013 but continued be a star performer. It depends to a degree on the 10 year Treasury and hopefully that has topped recently.

junkster, take a look at the attached as of Oct 2023. 98.3% Securitized. 

[junkster]

steadyeddy , see the link below and the footnotes.   The pie chart takes a bit of the mystery out of PIMIX and where they are concentrated.


www.pimco.com/handlers/displaydocument.ashx?id=pDT2kHtkOb7h0PhLj+qZ+RU1sEPibnjb3fUzX7b6kawNSOtmY3X15poTYgtQzUAaZPxRME+hV5eeSfrsh/KGueGERFJKTHGCTOp7snzIexv7I0mpLs/ya7PYmChpvb5sSc7NlUqdjiL3zD1RDFAL7PNSXhC0Kt4SyIMEWuR2eO+LAoGJxIPTlVM1HfifB8Otp4LIitT+kQwMlOkGH5iGzTkm5aGJ+jfHfP0m8k4eYGnUj8sLsWAKTFB0R6vTt7mjh7hQdgbWU/iO8cSOoP1TMdExo39GfmaCQUqn7O9RGrjHPFGCLU62+ELu5UesBIEae6304l4PltQV3VrBNtNCwSzctMSdgMCsbIl4a9ABBQ4=

[Chahta]

Nov 28, 2023 17:24:57 GMT junkster said:

Hard to say anything negative on PIMIX. Since its inception in 2007 there were only two years where it didn’t beat its Morningstar benchmark. If there was anything lurking under the surface it would have manifested itself during the vicious bear market in bonds last year. It is and always has been a MBS fund - both agency and non agency. Its latest holdings as of October 31 show over 50% there. Very small amounts of 5% and 4% in emerging market debt and high yield corporates. Ivansyn bought non agency MBS for literally pennies on the dollar in 2007 and 2008. That explains its outsized returns in its earlier years topping 22% in 2012. It lost its outsized momentum in 2013 but continued be a star performer. It depends to a degree on the 10 year Treasury and hopefully that has topped recently.

Sounds like you believe PIMIX to be a worthwhile investment. Some investors don’t like the fact it has grown so large. What is your take on the size of the AUM?

[junkster]

Nov 29, 2023 19:49:29 GMT Chahta said:

Nov 28, 2023 17:24:57 GMT junkster said:

Hard to say anything negative on PIMIX. Since its inception in 2007 there were only two years where it didn’t beat its Morningstar benchmark. If there was anything lurking under the surface it would have manifested itself during the vicious bear market in bonds last year. It is and always has been a MBS fund - both agency and non agency. Its latest holdings as of October 31 show over 50% there. Very small amounts of 5% and 4% in emerging market debt and high yield corporates. Ivansyn bought non agency MBS for literally pennies on the dollar in 2007 and 2008. That explains its outsized returns in its earlier years topping 22% in 2012. It lost its outsized momentum in 2013 but continued be a star performer. It depends to a degree on the 10 year Treasury and hopefully that has topped recently.

Sounds like you believe PIMIX to be a worthwhile investment. Some investors don’t like the fact it has grown so large. What is your take on the size of the AUM?

Gary, I have the utmost respect for Dan Ivascyn.  In spite of its outsized AUM it continues to outpace its peers in the multi sector bond category - no small feat.  It’s a groupthink fund but the exception in that it is still a worthwhile investment.  For my style of trading/investing though it lost its allure in mid 2013.  As mentioned above mortgage backed securities has always been its forte and largest holding.  Ivascyn year in and year out talks up the value there.  Besides munis I like MBS and actually considered PIMIX earlier this month.  But decided to go with a fund with smaller assets and even more focused on MBS.

[steadyeddy]

I am sticking with PIMIX as my largest single holding... it continues to show lower volatility and steady distributions.