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Post by keppelbay on Jan 16, 2024 22:14:06 GMT
For PIMCO CEF fans - December UNII report is out. Coverage ratios are looking distinctly worse in the taxable suite.
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Post by richardsok on Jan 17, 2024 0:07:18 GMT
For PIMCO CEF fans - December UNII report is out. Coverage ratios are looking distinctly worse in the taxable suite. Thanks, kep. Much appreciated. I didn't expect the report until next week. And, yes, the numbers ARE worse. I don't ever remember such deeply negative UNII. With all the confident conversations about some of these birds, either the coverage stats are concealing more than they reveal or it may be time to dump. It also occurs to me there's been precious little insider buying, AFAICS. I can't remember the last time I spotted a big PDI insider buy. Maybe they're getting some juicy options to accumulate favorably -- if not, something doesn't feel right.
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Post by keppelbay on Jan 17, 2024 1:14:36 GMT
For PIMCO CEF fans - December UNII report is out. Coverage ratios are looking distinctly worse in the taxable suite. Thanks, kep. Much appreciated. I didn't expect the report until next week. And, yes, the numbers ARE worse. I don't ever remember such deeply negative UNII. With all the confident conversations about some of these birds, either the coverage stats are concealing more than they reveal or it may be time to dump. It also occurs to me there's been precious little insider buying, AFAICS. I can't remember the last time I spotted a big PDI insider buy. Maybe they're getting some juicy options to accumulate favorably -- if not, something doesn't feel right. It's a big change in UNII from Nov to Dec. PDI down 77c. PDO down 54c. etc. If they earned nothing in the month, the shortfall could at most shift UNII down by one month's distribution. They must be moving money around. We've seen big downward shifts in UNII before, without negative consequences. We have to hope whatever they've done will protect future distribution potential. Its all a bit scary, though.
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Post by retiredat48 on Jan 17, 2024 2:26:31 GMT
Thanks, kep. Much appreciated. I didn't expect the report until next week. And, yes, the numbers ARE worse. I don't ever remember such deeply negative UNII. With all the confident conversations about some of these birds, either the coverage stats are concealing more than they reveal or it may be time to dump. It also occurs to me there's been precious little insider buying, AFAICS. I can't remember the last time I spotted a big PDI insider buy. Maybe they're getting some juicy options to accumulate favorably -- if not, something doesn't feel right. It's a big change in UNII from Nov to Dec. PDI down 77c. PDO down 54c. etc. If they earned nothing in the month, the shortfall could at most shift UNII down by one month's distribution. They must be moving money around. We've seen big downward shifts in UNII before, without negative consequences. We have to hope whatever they've done will protect future distribution potential. Its all a bit scary, though.
I agree keppelbay. It's the "black box" aspect of PIMCO/PDI. Note also that PAXS a relatively new fund, has fallen significantly in UNII compared to six months ago. UNII percent is below PDO, a much older fund. Doesn't make sense PAXS would get in trouble. Must be some accounting thing, perhaps involving cap gain swaps, that is causing such steep drops. Surely haven't heard of any major defaults. R48
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Post by retiredat48 on Jan 17, 2024 2:36:44 GMT
racqueteer ...One difference may be this. You seem to be assuming the older bond falls in price to yield current bond rates, if bought by a newcomer. No. That would leave a bond with a current coupon rate PLUS a cap gain if held to maturity. So older bonds do not decline as much, nor provide current yield same as existing new issue bonds. Selling owned (older) holdings and buying current, new bonds gets one more income. But gives up on potential cap gains. Thus increasing income for the next divy payouts. Further, I suspect PDI did some of the reverse. Where failing or marginal banks were hit by mark-to-market NAV declines, the banks boosted income by "swapping" certain bonds with PDI, where PDI traded current income to get a higher cap gain, thus more income down the road. I don't run the fund so can't say for sure. But I see how one at times wants to juice up income, and can do it. R48
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Post by racqueteer on Jan 17, 2024 5:44:28 GMT
"racqueteer ...One difference may be this. You seem to be assuming the older bond falls in price to yield current bond rates, if bought by a newcomer. No. That would leave a bond with a current coupon rate PLUS a cap gain if held to maturity. So older bonds do not decline as much, nor provide current yield same as existing new issue bonds. Selling owned (older) holdings and buying current, new bonds gets one more income. But gives up on potential cap gains. Thus increasing income for the next divy payouts."
This is my understanding: If you were purchasing a new, 7%, bond for $1000, you would collect 7% on your $1000 investment throughout the lifetime of the bond, and, at the end of its term, get your original $1000 back. Instead, you elect to purchase an older 4% bond. You're only going to get that 4% interest, where the going rate is a 7% return on your investment. You're also going to get the face value ($1000) back, of course. Clearly, that's not a good deal for you. The only way to make it a comparable deal is to also discount the bond so that instead of investing the full $1000, you get a discount and invest an amount such that the ultimate outcome results in an effective 7% return that includes a $1000 payout at maturity. Are you saying that this is not what is happening? It seems to me that the financial arrangements must result in the same financial outcome; or there would be no point in buying an older, lower interest rate bond?
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Post by keppelbay on Jan 17, 2024 8:37:40 GMT
It's a big change in UNII from Nov to Dec. PDI down 77c. PDO down 54c. etc. If they earned nothing in the month, the shortfall could at most shift UNII down by one month's distribution. They must be moving money around. We've seen big downward shifts in UNII before, without negative consequences. We have to hope whatever they've done will protect future distribution potential. Its all a bit scary, though.
I agree keppelbay . It's the "black box" aspect of PIMCO/PDI. Note also that PAXS a relatively new fund, has fallen significantly in UNII compared to six months ago. UNII percent is below PDO, a much older fund. Doesn't make sense PAXS would get in trouble. Must be some accounting thing, perhaps involving cap gain swaps, that is causing such steep drops. Surely haven't heard of any major defaults. R48 Correction: The change in UNII for PDI was from -.77 to -.81, down 4c (down 2c for PDO). Senior moment reading the table. Apologies for that. Still the difference in 3 mo avg coverage ratios was large over the month, moving from 72% in Nov to 42% in Dec for PDI.
R48: by UNII percent I guess you mean 3 mo avg coverage ratio (?). PAXS at 58% is currently below PDO at 67%. Last month PAXS was at 98% vs 84% for PDO. 6 months ago UNII was at zero for both funds.
Dec Nov Oct Sept Aug July June PDI UNII -0.81 -0.77 -0.66 -0.59 -0.43 -0.21 -0.11 PDO UNII -0.54 -0.52 -0.49 -0.38 -0.25 -0.13 0.0 PAXS UNII -0.20 -0.14 -0.06 -0.05 -0.14 -0.15 0.0
These are the monthly UNII figures going back 6 months. In chart form:
PDI and PDO seem to be on steady trends. PAXS behaved differently from Aug through October. By this measure, PAXS looks good.
Here is a chart of the 3 month average NII (note not UNII)
The relationship between the monthly UNII numbers and the 3 month average NII and UNII numbers is hard to make sense of.
I try to resist falling into this rabbit hole. But as you see, I've failed!
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Post by retiredat48 on Jan 18, 2024 0:26:37 GMT
"racqueteer ...One difference may be this. You seem to be assuming the older bond falls in price to yield current bond rates, if bought by a newcomer. No. That would leave a bond with a current coupon rate PLUS a cap gain if held to maturity. So older bonds do not decline as much, nor provide current yield same as existing new issue bonds. Selling owned (older) holdings and buying current, new bonds gets one more income. But gives up on potential cap gains. Thus increasing income for the next divy payouts."
This is my understanding: If you were purchasing a new, 7%, bond for $1000, you would collect 7% on your $1000 investment throughout the lifetime of the bond, and, at the end of its term, get your original $1000 back. Instead, you elect to purchase an older 4% bond. You're only going to get that 4% interest, where the going rate is a 7% return on your investment. You're also going to get the face value ($1000) back, of course. Clearly, that's not a good deal for you. The only way to make it a comparable deal is to also discount the bond so that instead of investing the full $1000, you get a discount and invest an amount such that the ultimate outcome results in an effective 7% return that includes a $1000 payout at maturity. Are you saying that this is not what is happening? It seems to me that the financial arrangements must result in the same financial outcome; or there would be no point in buying an older, lower interest rate bond?
Rac...I agree with you 100% here. That is what I was saying. So with your post, we agree the older bond will not fall as much in price. Where a new bond may yield 7% to a new buyer, the old bond will yield let's say 6% and a built in cap gain of 1%; which gives 7%. The 1% cap gain cannot be counted as income until "realized." So PDI sells the older bond and buys the new 7% bond with no built in cap gain. It has boosted income by 1/6 = 16.6%. This is how one keeps boosting income. So if one buys PDI today with a yield of 14% (even with a premium to NAV), that is buying into "older bonds". If pimco converts to newer bonds, income will rise even further. Put another way, where a ROC situation can exist today, the ROC can be continually reduced (made better) by boosting income. Final observation...it appears PDI went the other direction recently and INCREASED ROC needs. (See keppelbay info). Difficult to figure out why, unless they are swapping income to get future cap gains that will enhance income even more, when " cap gains realized." Not a comforting recent report. We shall see. R48
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Post by racqueteer on Jan 18, 2024 4:30:42 GMT
Rac...I agree with you 100% here. That is what I was saying. Ok... It appears, then, that we were saying the same thing using different terminology; as I suspected. Let's say, for the sake of argument, that PDI is holding bonds paying an average 7% (a figure which is almost certainly too high; I doubt it's more than 4%). Its dividend is 14%. It needs to generate an additional 7% to cover its dividend shortfall to go sideways (ignoring market inefficiencies). The market goes sideways if it falls 10% below its average return. So, to do 'better', PDI has to generate an excess 7%, and the market has to underperform by maybe 10%. Certainly a simplistic way to look at things, granted. If PDI were holding 10% bonds and the market seemed weak, I'd like the odds better.
Anyway, I appreciate your time and effort in helping me sort this all out. I don't pretend to understanding how PDI operates, and I'll leave it to others to decide on the merits of a bet for or against.
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Post by anitya on Jan 18, 2024 5:05:12 GMT
“Market prices of financial assets do not accurately reflect their fundamental value because they do not even aim to do so. Prices reflect market participants’ expectations of future market prices.”
- George Soros
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Post by liftlock on Jan 19, 2024 1:47:52 GMT
racqueteer , This is how I see it. PDI as of 12/31/2023 has an average weighted coupon of 7.27%. It has an average weighted price on it's bonds of 82.07. If one buys PDI now it would get the coupon of 7.27% in interest and over the life of those bonds would get the capital appreciation of the bonds price going from 82.07 to 100 par as the bonds approach maturity. I don't know how PDI is cultivating 14% in dividends. I have not studied PDI, but there are a several other factors that might be considered: Is the average weighted coupon of 7.27% based on par or on the lower market value of bonds at 82% of par? I don't know. What is the average weighted time to maturity for the bonds? The Pimco website quotes an average duration of about 6 years which is a good indication of the bonds average time to maturity. This suggests the 18% current discount on the bonds par value will close over 6 years or at an average rate of 3% per year. Add that to the 7.3% coupon increases the total expected annual return to 10.3%. Leverage is another factor. The Pimco website indicates the leveraged adjusted effective duration for PDI is about 3 years. This suggests the 18% current discount on the bonds par is likely to close in 3 years generating an average capital gain of 6% per year. This would increase the expected total annual return to 13.3%. Then there is potential leverage on the weighted coupon. I have no idea whether that might be factored into the 7.27% weighted average coupon. If not, leverage is going to increase the average weighted coupon, not considering the cost of leverage. The Pimco website indicates that 40% of total assets are leveraged. That has the potential to increase the weighted average coupon by more than 1/3, if the 7.27% coupon is without leverage. The cost of leverage is another factor. I am not sure how to value that. PDI is trading at a premium which going to reduce the expected total return by the amount of the premium, currently about 8.75%. Based on the above, I can see how it might be possible for PDI to earn a 14% distribution. Leverage is a potentially big factor which was likely a significant contributor to the price decline of PDI as interest rates rose. The opposite is likely to occur as interest rates decline.
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Post by racqueteer on Jan 19, 2024 12:45:20 GMT
liftlock, thank you for your considered response. I wish I fully understood the terminology, but I'd rather be discussing quarks and bosons! I absolutely realize that getting a handle on whether or not the dividend is being earned is very complicated. Certainly above my skill level. What does seem reasonable to me is that things would be easier on that end if rates were higher. Otoh, rates rising depresses the NAV/PRICE. Where we are, results in more difficulty in generating that dividend, and makes it harder to generate a capital gain. As I suggested, if we're looking ahead to a rate drop, then we would get a little help on the capital gain end. Either way, we still need the market to stumble to make this wager work out. Could all of that happen? Sure. Will it? I'm not confident in that outcome. R48 is. So it goes....
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Post by retiredat48 on Jan 19, 2024 15:31:09 GMT
racqueteer ,...briefly, I'm OK with things staying the same. If everything flat-lined PIMCO can rollover maturing FI investments at par, buy higher yield stiff, and raise dividends...or at least not lower current monthly dividend. however, recent ROC, UNNI report not too encouraging. I posted I expected a cut in dividend payout in Dec. Didn't happen; so fingers crossed for 2024. R48 Edit to add: PDI now gone from about $15/share, late October, to $18.67 currently....Hmmm. About the time I converted to dividend reinvest (and posted same), versus taking dividend to live on!
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Post by mnfish on Jan 20, 2024 14:44:49 GMT
I've been downloading the PDI holdings documents since March 2023. In comparing Mar to Dec, here's a tidbit of information.
In Mar PDI held a Loan Participation with Envision Healthcare valued at $144.6M or 3.2% of NAV which was $4.435B in Mar.
Envision filed bankruptcy in May. After a restructuring Envision split off Amsurg surgical. Pimco, then a large existing creditor at Envision, swapped its existing loan to that company for a junior loan stake in AmSurg and apparently common stock as per the Dec holdings report.
The new positions in Amsurg, loans and stock, are now valued at $303.6M which is 6.1% of the Dec NAV of $4.905B. That calculates to 34% of the increase in NAV since Mar. All from a deal which resulted from a company going bankrupt. BTW, the loan rate for the new Amsurg loan is 13.25%. It must be a very profitable company to be able to pay that much in interest.
It should also be noted that in Sept, PDI had Loans with Amsurg that totaled $519.5M or 4.7% of NAV. So, $215.9M went somewhere.
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Post by FD1000 on Jan 20, 2024 15:13:05 GMT
liftlock , very nice and detailed explanation. I get lost with too many moving parts. I also noticed that duration, par and all the rest can't really forecast performance very accurately and sellers can affect it regardless. Example: In March 2020 PDI lost over 40% and more than SPY and much more than QQQ. Rates were sharply too. Well, I thought the rebound will be great too, especially with such high distributions (after the NAV was down). Nope. PDI lost based on price in 2020, which is the only one that counts. In 2020 SPY,QQQ made 18.4%,46.8%. I can't figure out how CEFs work out...it turns out the CEFs experts on seeking alpha and other places with pages of analysis can't either. Attachments:
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Post by retiredat48 on Jan 20, 2024 18:33:11 GMT
A snippet from Capecods recent post:
as...noted last night that the PIMCO 12/31 holdings reports had been released, and there were some significant changes worth mentioning: the addition of PIMCO short-term floating rate NAV funds as the principal cash investment and big new positions in swap books. As always, the swaps are hard to characterize because their function in the portfolio as a whole is never clear, but net, they APPEAR to be poised to increase NAV as actual Fed funds rates fall. IMO more clearly, the CEF suite appears once again to be beginning the year -- as in 2023 -- with cash allocations large enough to pay distributions for the year by themselves --- PDI 12% PDO 11% PAXS 14% all in the floating rate NAV fund (where NAV fund presumably means a short term investment vehicle that is not a steady $1/share MM fund but rather an actively managed short term fund with a variable NAV.
My GUESS --- REALLY, GUESS! Cash resources have been set aside to maintain steady distributions. The remainder of the portfolio is structured to both generate income but mostly generate accelerated NAV if/as Fed cuts rates a few times. This was my theory on 2023 portfolios . Dick.
-------------------------------
R48
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Post by rhythmmethod on Jan 20, 2024 21:56:51 GMT
retiredat48 , It is true that Cape Cod posted this today. He also posted a few days ago he had sold out a lot of his PIMCO holdings and was 40+% cash. As I look for something actionable, I keep coming back to hold these things for income.Use the income or reinvest.Those who trade these high income/high risk vehicles get my admiration. My humble opinion is watching the day to day info (which is really never current and confusing even to experts) leads to dog chasing tail syndrome. Good luck with it all. I'm long PDI and reinvesting.
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Post by Broozer on Jan 21, 2024 2:39:52 GMT
retiredat48 , It is true that Cape Cod posted this today. He also posted a few days ago he had sold out a lot of his PIMCO holdings and was 40+% cash. As I look for something actionable, I keep coming back to hold these things for income.Use the income or reinvest.Those who trade these high income/high risk vehicles get my admiration. My humble opinion is watching the day to day info (which is really never current and confusing even to experts) leads to dog chasing tail syndrome. Good luck with it all. I'm long PDI and reinvesting. Don't forget about price-stable MM funds. I have 11% of my portfolio in Schwab's, earning 5.22%.
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Post by liftlock on Jan 21, 2024 4:18:05 GMT
I've been downloading the PDI holdings documents since March 2023. In comparing Mar to Dec, here's a tidbit of information. In Mar PDI held a Loan Participation with Envision Healthcare valued at $144.6M or 3.2% of NAV which was $4.435B in Mar. Envision filed bankruptcy in May. After a restructuring Envision split off Amsurg surgical. Pimco, then a large existing creditor at Envision, swapped its existing loan to that company for a junior loan stake in AmSurg and apparently common stock as per the Dec holdings report. The new positions in Amsurg, loans and stock, are now valued at $303.6M which is 6.1% of the Dec NAV of $4.905B. That calculates to 34% of the increase in NAV since Mar. All from a deal which resulted from a company going bankrupt. BTW, the loan rate for the new Amsurg loan is 13.25%. It must be a very profitable company to be able to pay that much in interest. It should also be noted that in Sept, PDI had Loans with Amsurg that totaled $519.5M or 4.7% of NAV. So, $215.9M went somewhere. It appears that AmSurg emerged from the Envision bankruptcy in Nov 2023, finance.yahoo.com/news/amsurg-positioned-growth-independent-company-192100490.htmlIf PDI held 519.5M in AmSurg bonds as of 9/30/23, it may have taken a haircut during the bankruptcy reorg, ending up with AmSurg stock worth 303.6 M as of 12/31/2023. When a company pays high interest on a loan, it is usually because they are at a higher risk of not being able to repay their loan.
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Post by anitya on Jan 21, 2024 5:19:33 GMT
Is PDI still issuing new stock at the market, which of course helps existing shareholders when it is trading at a premium? Is it possible some of the aggregate NAV increase is from new issuances?
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Post by retiredat48 on Jan 21, 2024 5:58:39 GMT
retiredat48 , It is true that Cape Cod posted this today. He also posted a few days ago he had sold out a lot of his PIMCO holdings and was 40+% cash. As I look for something actionable, I keep coming back to hold these things for income.Use the income or reinvest.Those who trade these high income/high risk vehicles get my admiration. My humble opinion is watching the day to day info (which is really never current and confusing even to experts) leads to dog chasing tail syndrome. Good luck with it all. I'm long PDI and reinvesting. I don't trade my CEFs...I am a long term investor in same. Capecod is good for "under-the-hood" type things re bond funds...thus the post. BTW those monthly dividends from CEFs have sure given my portfolios an income boost over the years! R48
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Post by fishingrod on Jan 21, 2024 8:34:55 GMT
Is PDI still issuing new stock at the market, which of course helps existing shareholders when it is trading at a premium? Is it possible some of the aggregate NAV increase is from new issuances? I am not sure if this is what you were looking for.
Here is what I found. Sept. 2023 stock issuance. Prospectus supplement says "from time to time"
"In accordance with the terms of the Sales Agreement, the Fund may offer and sell its Common Shares having an aggregate offering price of up to $2,000,000,000, from time to time through JonesTrading as its agent for the offer and sales of the Common Shares. As of August 31, 2023, in prior “at the market” offerings, the Fund had sold through JonesTrading as its agent pursuant to prior registration statements an aggregate of 65,497,134 Common Shares, representing net proceeds to the Fund of $1,478,381,771 after payment of commissions."
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Post by mnfish on Jan 21, 2024 11:15:02 GMT
I've been downloading the PDI holdings documents since March 2023. In comparing Mar to Dec, here's a tidbit of information. In Mar PDI held a Loan Participation with Envision Healthcare valued at $144.6M or 3.2% of NAV which was $4.435B in Mar. Envision filed bankruptcy in May. After a restructuring Envision split off Amsurg surgical. Pimco, then a large existing creditor at Envision, swapped its existing loan to that company for a junior loan stake in AmSurg and apparently common stock as per the Dec holdings report. The new positions in Amsurg, loans and stock, are now valued at $303.6M which is 6.1% of the Dec NAV of $4.905B. That calculates to 34% of the increase in NAV since Mar. All from a deal which resulted from a company going bankrupt. BTW, the loan rate for the new Amsurg loan is 13.25%. It must be a very profitable company to be able to pay that much in interest. It should also be noted that in Sept, PDI had Loans with Amsurg that totaled $519.5M or 4.7% of NAV. So, $215.9M went somewhere. It appears that AmSurg emerged from the Envision bankruptcy in Nov 2023, finance.yahoo.com/news/amsurg-positioned-growth-independent-company-192100490.htmlIf PDI held 519.5M in AmSurg bonds as of 9/30/23, it may have taken a haircut during the bankruptcy reorg, ending up with AmSurg stock worth 303.6 M as of 12/31/2023. When a company pays high interest on a loan, it is usually because they are at a higher risk of not being able to repay their loan. The Dec Holdings report shows the Amsurg holdings to be $180.4M of common stock and a Loan of $123.2M. The AMSG stock last traded @ $67 according to Market Beat but had this - "Notice: This company has been marked as potentially delisted and may not be actively trading." The ticker does not come up on Yahoo. PDI appears to own 3.5M shares at $51.29 so they're sitting on a nice gain if they can find any buyers.
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Post by keppelbay on Jan 21, 2024 13:24:07 GMT
Is PDI still issuing new stock at the market, which of course helps existing shareholders when it is trading at a premium? Is it possible some of the aggregate NAV increase is from new issuances? Yes, and it is a significant source of cash flow. ADS analytics wrote a piece on this over at SA dated Dec 13th. Here's a table he annotated from the PDI annual report dated June 30th 2023:
Proceeds from "at the market offerings" were 659 Million. The dividend drip program added another 91M. This exceeds the 545 M earned as NII. For reference distributions were 804 M, so the ATM share sale + NII more than covered the distribution. The 'leftover' 491M contributes to NAV, and presumably was invested to grow future income to help fund distributions for the old shareholders as well as those holding the 38M new shares (~13% of total). PIMCO is free to increase or decrease the number of shares they sell to suit their cash flow needs and to fund new investment opportunities.
These numbers cover July 2022 through June 2023. A period when NAV was decreasing. The decrease would likely have been worse without the 491M net increase in assets from the ATM program. Assuming that ATM sales + NII still exceed distributions, they would contribute to the recent rise in NAV. But I doubt the excess is enough to move the NAV needle compared to the effects of mark to market pricing of assets in anticipation of rate cuts.
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Post by richardsok on Jan 21, 2024 13:45:28 GMT
Is PDI still issuing new stock at the market, which of course helps existing shareholders when it is trading at a premium? Is it possible some of the aggregate NAV increase is from new issuances? Yes, and it is a significant source of cash flow. ADS analytics wrote a piece on this over at SA dated Dec 13th. Here's a table he annotated from the PDI annual report dated June 30th 2023:
Proceeds from "at the market offerings" were 659 Million. The dividend drip program added another 91M. This exceeds the 545 M earned as NII. For reference distributions were 804 M, so the ATM share sale + NII more than covered the distribution. The 'leftover' 491M contributes to NAV, and presumably was invested to grow future income to help fund distributions for the old shareholders as well as those holding the 38M new shares (~13% of total). PIMCO is free to increase or decrease the number of shares they sell to suit their cash flow needs and to fund new investment opportunities.
These numbers cover July 2022 through June 2023. A period when NAV was decreasing. The decrease would likely have been worse without the 491M net increase in assets from the ATM program. Assuming that ATM sales + NII still exceed distributions, they would contribute to the recent rise in NAV. But I doubt the excess is enough to move the NAV needle compared to the effects of mark to market pricing of assets in anticipation of rate cuts.
A: "Yes .... it is a significant source of cash flow. Proceeds from "at the market offerings" were 659 Million. .... distributions were 804 M, so the ATM share sale + NII more than covered the distribution. The 'leftover' 491M contributes to NAV, and presumably was invested to grow future income to help fund distributions for the old shareholders as well as those holding the 38M new shares (~13% of total). PIMCO is free to increase or decrease the number of shares they sell to suit their cash flow needs and to fund new investment opportunities."
B: INVESTOPEDIA on closed end funds: KEY TAKEAWAYS--- The initial capital for a closed-end fund is raised through a one-time offering of a limited number of shares in the fund.
The shares may then be bought and sold on a public stock exchange but no new shares can be created.
----------- If "A" is true, how can "B" be true ? I don't doubt your veracity for a second, kep -- but surely Pimco's "A" activities seem to contradict "B". Would you agree?
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Post by keppelbay on Jan 21, 2024 13:57:14 GMT
Yes, and it is a significant source of cash flow. ADS analytics wrote a piece on this over at SA dated Dec 13th. Here's a table he annotated from the PDI annual report dated June 30th 2023:
Proceeds from "at the market offerings" were 659 Million. The dividend drip program added another 91M. This exceeds the 545 M earned as NII. For reference distributions were 804 M, so the ATM share sale + NII more than covered the distribution. The 'leftover' 491M contributes to NAV, and presumably was invested to grow future income to help fund distributions for the old shareholders as well as those holding the 38M new shares (~13% of total). PIMCO is free to increase or decrease the number of shares they sell to suit their cash flow needs and to fund new investment opportunities.
These numbers cover July 2022 through June 2023. A period when NAV was decreasing. The decrease would likely have been worse without the 491M net increase in assets from the ATM program. Assuming that ATM sales + NII still exceed distributions, they would contribute to the recent rise in NAV. But I doubt the excess is enough to move the NAV needle compared to the effects of mark to market pricing of assets in anticipation of rate cuts.
A: "Yes .... it is a significant source of cash flow. Proceeds from "at the market offerings" were 659 Million. .... distributions were 804 M, so the ATM share sale + NII more than covered the distribution. The 'leftover' 491M contributes to NAV, and presumably was invested to grow future income to help fund distributions for the old shareholders as well as those holding the 38M new shares (~13% of total). PIMCO is free to increase or decrease the number of shares they sell to suit their cash flow needs and to fund new investment opportunities."
B: INVESTOPEDIA on closed end funds: KEY TAKEAWAYS--- The initial capital for a closed-end fund is raised through a one-time offering of a limited number of shares in the fund.
The shares may then be bought and sold on a public stock exchange but no new shares can be created.
----------- If "A" is true, how can "B" be true ? I don't doubt your veracity for a second, kep -- but surely Pimco's "A" activities contradict "B". Would you agree?richardsok , you'd think so, but apparently companies can apply to the SEC for permission to have what they call a shelf offering which gives them permission to issue a defined number of new shares when they wish over a 3 year period. Apparently the legal structure of the CEFs allows them to use this provision. You can read about shelf offerings here:
Added by edit: along the same 'this should not be possible' lines: UNII is cumulative over the life of the fund. You'd think it should only go up by distributing in excess of earnings or down by overearning the distro. Yet we see UNII moving all over the place in some of the PIMCO DEFs in ways that cannot be explained by the monthly reported changes in NII. Go figure....
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Post by rhythmmethod on Jan 21, 2024 20:30:43 GMT
retiredat48 , It is true that Cape Cod posted this today. He also posted a few days ago he had sold out a lot of his PIMCO holdings and was 40+% cash. As I look for something actionable, I keep coming back to hold these things for income.Use the income or reinvest.Those who trade these high income/high risk vehicles get my admiration. My humble opinion is watching the day to day info (which is really never current and confusing even to experts) leads to dog chasing tail syndrome. Good luck with it all. I'm long PDI and reinvesting. I don't trade my CEFs...I am a long term investor in same. Capecod is good for "under-the-hood" type things re bond funds...thus the post. BTW those monthly dividends from CEFs have sure given my portfolios an income boost over the years! R48 Thanks, I thought that was the case. I understand there is an interest in the "under the hood" mechanics of these complex vehicles. I have seen others, even very experienced folks, get burned on these things trading in and out. For those playing at home, I thought it might be helpful to separate the functionality of CEFs from going "in and out" based on the news of the day, which is, at best, complex and never fully current. You and I both are long-term holders and use the income as we see fit. CEFs are certainly not for everyone, and some can be successful with them as trading vehicles. IMO, trading adds leverage on top of the existing leverage. Good luck to us both! - RM
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Post by richardsok on Jan 22, 2024 13:28:48 GMT
OK, I buy it, kep. A CEF can apply for and receive permission to offer additional shares to benefit its existing shareholders when prices are at premium, the proceeds to be used to juice distributions when NII is faltering. It occurs to me that the devil really must be in the details. Once granted permission to expand, can permission be revoked? Is there any limit to the number of additional shares a CEF can create? Once new shares are no longer being created doesn't the CEF face a new period when it has far more shares to pay distributions on --- when its coverage was below 100 even BEFORE the new shares were created? I guess no one is complaining because everyone is making too much in distributions -- but it's troubling that maybe the biggest CEF of all is evidently operating contrary to generally understood rules -- as routine. There's something about this that smells like "the greater fool theory" with PDI. My ignorance about this fund's operations prevents me from having a big position,
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Post by keppelbay on Jan 22, 2024 15:04:00 GMT
OK, I buy it, kep. A CEF can apply for and receive permission to offer additional shares to benefit its existing shareholders when prices are at premium, the proceeds to be used to juice distributions when NII is faltering. It occurs to me that the devil really must be in the details. Once granted permission to expand, can permission be revoked? Is there any limit to the number of additional shares a CEF can create? Once new shares are no longer being created doesn't the CEF face a new period when it has far more shares to pay distributions on --- when its coverage was below 100 even BEFORE the new shares were created? I guess no one is complaining because everyone is making too much in distributions -- but it's troubling that maybe the biggest CEF of all is evidently operating contrary to generally understood rules -- as routine. There's something about this that smells like "the greater fool theory" with PDI. My ignorance about this fund's operations prevents me from having a big position, richardsok, you raise a couple of different issues here:
- Share number: the application for a shelf issue is for a specific max $ amount of shares, and the permission has limited duration. They can apply to extend if shares have not all been issued. In the case of PDI fishingrod gave a link to a filing from Sept 2023 indicating that PDI had applied for permission to sell $2B of shares. A big #, given that total assets are 4.9B!
- Revocation of shelf offering permission: seems doubtful, barring violation of SEC rules.
- Coverage 1: This is just a guess. We don't know how much of the proceeds of the shelf offering are used to juice distributions. The arithmetic I posted above considers only NII + shelf offering proceeds, and ignores other income from non-NII sources (I don't know how to get at that). So worst case scenario if the shelf offering covered the shortfall in NII, there was still a lot left over to reinvest to fund distributions for the new shares. Also, don't forget that the UNII report gives coverage ratios based on NII. They don't include non-NII income sources.
-risk: the ATM sales only work if the fund trades at a significant premium to NAV. The point of ADS analytics recent article was to highlight the risk that PDI had become dependent on the ATM sales to sustain the distribution and that loss of the premium for an extended period might be a trigger for a distribution cut. This bears thinking about. But also note the quote from Capecod that R48 posted above. Dick points out that they have set aside enough cash to cover the year's distributions.
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Post by retiredat48 on Jan 22, 2024 16:19:33 GMT
I'm rather agnostic re PDI. I consider the PCI merger was handled poorly for shareholders. Cannot read the "black box" in terms of income distributions or cuts coming. Will not be surprised with a cut.
R48
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