Bill Gross Sees Value In Depressed Closed-End Funds

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 |  Includes: PCI, PCQ, PDI, PMF
by: George Spritzer, CFA

According to recent SEC filings, Bill Gross invested over $5.8 million of his personal money in four Pimco closed-end bond funds on Monday.

There is generally a one day delay in SEC filings, and it is quite possible that Mr. Gross is planning additional purchases this week. Instead of reporting each individual trade, Mr. Gross reports a weighted average price for each purchase:

Trade Date

Ticker

Shares

Avg. Price

$ Invested

Fund Type

10/21/2013

PCI

100,000

22.4152

$2,241,520

Taxable Multi-Sector

10/21/2013

PDI

100,000

29.3089

$2,930,890

Taxable Multi-Sector

10/21/2013

PCQ

38,375

13.2019

$506,623

Tax-Free California

10/21/2013

PMF

14,709

12.4958

$183,801

Tax-Free National

$5,862,833.63

Click to enlarge

Mr. Gross often steps up to buy Pimco CEFs when he sees value. Sometimes he buys funds that he manages himself, but in this case, he purchased four funds run by other Pimco managers.

Pimco closed-end funds often sell at a premium to net asset value, or at a lower discount than other similar funds. I believe regular fund purchases of Pimco funds by Mr. Gross may be one reason for this.

It is interesting that PCI and PDI are both fairly new funds, and they are more likely to be affected by tax loss selling than many of the older Pimco funds. The other two funds hold municipal bonds. Here is a link to a 2006 research paper published in the Journal of Finance entitled: "Tax-Loss Selling and the January Effect: Evidence from Municipal Bond Closed-End Funds".

Here is a brief overview of each fund purchased on Monday:

1) Pimco Dynamic Credit Income

-pays monthly

· Total Assets= 3,868 MM Total Common Assets=3,333 MM

· Annual Distribution (Market) Rate= 8.37%

· Latest Monthly Distribution= 0.1563 (annual= $1.8756)

· Average Monthly Earnings per Share= $0.1059 (as of 06/30/2013)

· Fund Expense ratio= NA (fund started 1/31/2013)

· Discount= -8.11%

· Average Six Month Discount= -6.08%

· Effective Leverage: 14%

· Average Daily Volume: 474,000 Average $ Volume: 10.4MM

· Manager: Team-managed (Mark Kiesel, Alfred Murata plus others)

2) Pimco Dynamic Income Fund

-pays monthly

· Total Assets= 2,682 MM Total Common Assets= 1,427 MM

· Annual Distribution (Market) Rate= 7.81%

· Latest monthly distribution= 0.191 (annual= $2.292)

· Average Monthly Earnings per Share= $0.3193 (as of 03/31/2013)

· Fund Expense ratio= 2.01%

· Discount= -5.33%%

· Average One Year Discount= -3.15%

· Effective Leverage: 47.39%

· Average Daily Volume: 186,000 Average $ Volume: 5.4MM

· Managers: Dan Ivascyn, Alfred Murata, Joshua Anderson

3) Pimco CA Municipal Income Fund

-pays monthly

· Total Assets= 387 MM Total Common Assets= 237 MM

· Annual Distribution (Market) Rate= 6.92%

· Latest monthly distribution= 0.077 (annual= $0.924)

· Average Monthly Earnings per Share= $0.0847 (as of 04/30/2013)

· Fund Expense ratio= 1.21%

· Premium= +4.96%

· Average One Year Premium= +6.07%

· Effective Leverage: 47.02%

· Average Daily Volume: 62,000 Average $ Volume: 0.8MM

· Manager: Joe Deane

4) Pimco Municipal Income Fund

-pays monthly

· Total Assets= 486 MM Total Common Assets= 296 MM

· Annual Distribution (Market) Rate= 7.77%

· Latest monthly distribution= 0.0813 (annual= $0.9756)

· Average Monthly Earnings per Share= $0.0777 (as of 04/30/2013)

· Fund Expense ratio= 1.19%

· Premium= +8.63%

· Average One Year Premium= +12.10%

· Effective Leverage: 47.02%

· Average Daily Volume: 122,000 Average $ Volume: 1.5MM

· Manager: Joe Deane

Disclosure: I am long PDI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.