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Over three years ago, I wrote an article about the PIMCO Closed-End Fund "Anomaly". I published an update of this study early last year showing that the average premium expanded even further.

I've taken another look at the PIMCO CEFs and have included two new funds that did not exist in 2010. In March 2010, all 18 PIMCO closed-end funds were trading at a premium over net asset value. (Note: I omitted funds that may be run by Allianz or sub-managed by PIMCO but do not have "PIMCO" in their names since these funds do not seem to benefit from the PIMCO anomaly).

At Thursday's close, the two newest funds were trading at a discount to NAV. Here is a snapshot table comparing the premiums on all three dates.

PIMCO Closed-end Funds Snapshots

03/19/2010

01/06/2012

05/23/2013

Type

PGP

48.10%

75.36%

59.70%

Multi-sector

PHK

38.52%

69.62%

52.47%

High Yield

PCK

9.53%

20.30%

21.08%

Muni-CA

RCS

20.13%

31.61%

19.15%

Glbl Inc

PTY

8.87%

28.16%

17.83%

Inv Grade

PMF

11.91%

17.58%

16.48%

Muni-Natl

PNI

4.88%

8.39%

14.19%

Muni- NY

PMX

8.95%

13.21%

13.48%

Muni-Natl

PCN

6.44%

26.37%

11.66%

Inv Grade

PYN

1.90%

6.65%

9.74%

Muni- NY

PCM

3.94%

14.08%

8.72%

Mtg

PZC

2.77%

7.07%

6.73%

Muni- CA

PFN

4.90%

3.77%

5.48%

Multi-sector

PML

5.64%

4.14%

5.27%

Muni- Natl

PFL

11.87%

7.24%

5.25%

Multi-sector

PCQ

3.98%

6.10%

5.15%

Muni- CA

PNF

1.19%

5.12%

4.57%

Muni- NY

PKO

1.15%

11.79%

3.58%

Multi-sector

PCI

-1.86%

Multi-sector

PDI

-2.66%

Multi-sector

Average

10.82%

19.81%

13.49%

The average PIMCO CEF premium of 13.49% has decreased from Jan. 2012 levels, but is still above the March 2010 average of 10.82%.

While many of the above premiums are still way too high, some of the more modest premiums are easily justified for PIMCO funds that have below average borrowing cost on their leverage.

There are different kinds of leverage used by closed-end funds- e.g. preferreds, tender option bonds (TOBs), reverse repurchase agreements, bank loans etc. Until a few years ago, a common form of CEF leverage was Auction Rate Preferred (ARPs). The auction process by which ARPs had been marketed failed in 2008 and has not revived since. ARPs currently offer some of the lowest leverage cost available.

Some fund families, like Nuveen, have replaced ARPs with other instruments like debt, tender option bonds (TOBs), Municipal term preferred (MTPs), Variable Rate Demand Preferred (VRDPs) etc. But in the current market environment these instruments have higher borrowing costs than ARPs. PIMCO is one of the few firms that have kept most of their ARP financing which gives their funds a cost advantage over the competition. PIMCO also effectively uses reverse repurchase agreements or swaps with low borrowing rates.

I've included below another table that gives the current snapshot of the PIMCO CEFs compared with their 52-week low and average discount. I also give the inception date of each fund. Note that the three newest funds have the most attractive valuations. PCI and PDI sell at discounts, and PKO trades at a modest 3% premium.

PIMCO Closed-End Funds- Current Snapshot

May 23, 2013

Ticker

Premium

52 wk avg

52 wk low

Type

Inception

PGP

59.70%

59.85%

23.44%

Multi-Sector

05/31/2005

PHK

46.23%

52.47%

22.14%

Hi Yld

04/30/2003

PCK

21.08%

19.31%

13.84%

Muni- CA

06/28/2002

RCS

19.15%

22.14%

6.02%

Glbl Inc

02/24/1994

PTY

17.83%

20.86%

9.03%

Inv Grade

12/27/2002

PMF

16.48%

17.35%

9.00%

Muni-Natl

06/29/2001

PNI

14.19%

12.94%

6.85%

Muni-NY

06/28/2002

PMX

13.48%

14.86%

5.81%

Muni-Natl

10/31/2002

PCN

11.66%

14.98%

7.92%

Inv Grade

12/21/2001

PYN

9.74%

9.30%

3.72%

Muni-NY

10/31/2002

PCM

8.72%

8.85%

-0.35%

Mtg

09/02/1993

PZC

6.73%

9.97%

4.39%

Muni- CA

10/31/2002

PFN

5.48%

5.76%

-0.64%

Multi-Sector

10/29/2004

PML

5.27%

6.55%

0.98%

Muni-Natl

06/28/2002

PFL

5.25%

7.66%

0.49%

Multi-Sector

08/26/2003

PCQ

5.15%

8.78%

3.68%

Muni- CA

06/29/2001

PNF

4.57%

5.41%

-0.81%

Muni-NY

06/29/2001

PKO

3.58%

6.79%

0.07%

Multi-Sector

11/30/2007

PCI

-1.86%

NA

NA

Multi-Sector

01/29/2013

PDI

-2.66%

NA

NA

Multi-Sector

05/25/2012

Average

13.49%

Some metrics that may be useful to evaluate PIMCO closed-end funds are the Average UNII (undistributed net income) per share and the recent earnings per share versus the latest distribution.

Two of the newer PIMCO funds (PKO and PDI) score well based on these metrics, since a distribution increase may be coming in the future. It is still too early for PCI to have generated much earnings data, but it will likely perform well based its similarity to other PIMCO funds.

Particularly impressive is PDI which closed today with an NAV of $32.33. The fund's inception was less than a year ago, when its NAV was only $23.85. This is one of the rare cases where buying a closed-end fund at the IPO has worked out very well.

PIMCO Income Opportunity

Distribution Yield= 7.37%

Premium= 3.58%

UNII= 0.4020

Current monthly distribution= $0.19 Monthly earnings= $0.2157

PIMCO Dynamic Income Fund

Distribution Yield= 6.74%

Discount= -2.66%

UNII= 0.3561

Current monthly distribution= $0.177 Monthly earnings= $0.2263

Source: Newest PIMCO Closed-End Funds Provide The Best Value