Putnam Premiere Income (PPT) is an unleveraged global closed-end bond fund that seeks high current income and capital preservation. The fund seeks broad diversification across global bond markets by investing in three different fixed income sectors:
- US high grade
- High Yield
- International Securities
An interesting feature of PPT is its current effective duration of negative 0.93. Effective duration provides a measure of a fund's interest rate sensitivity. The higher the effective duration, the more sensitive the fund is to a shift in interest rates.
Normally a bond fund will tend to rise in value when interest rates fall, and drop in value when interest rates rise. But because of its hedging strategies, PPT would actually benefit from higher interest rates.
In their last semi-annual earnings report (as of 1/31/2012) PPT reported a large $36.7 million loss on some swaps that were likely caused by falling interest rates. But since January 31, the PPT net asset value has done quite well and has appreciated about 3%. Interest rates have risen lately. A good part of the recent good performance is likely due to regaining much of the earlier reported loss on their swap positions.
PPT is currently selling at a discount to NAV of -5.34% compared to the 52 week average discount of -1.84%. The current discount is attractive compared to many other high yield closed-end bond funds that are currently trading at premiums above NAV.
In August 2011, PPT lowered its monthly distribution from $0.051 per share to $0.043, and in November 2011, the distribution was lowered again to $0.030 per share. The dividend reductions were caused by decreases in yield from asset-backed securities, overall decreases in interest income due to the low interest rate environment, and a decrease in interest income due to declining market yields.
PPT reported average monthly earnings per share of $0.0253 at the end of January, but I believe the fund will likely post stronger earnings in February and March based on the recent increases in NAV.
There was $0.1032 in UNII per share (undistributed investment income) as of the end of January, so there is little risk of more dividend cuts in the near term. I believe dividend increases are more likely.
PPT is managed by a team of five fixed income specialists who each have over twenty years experience in the industry.
Asset Class Breakdown (as of 01/31/2012)
High Yield Corporate (US & Intl)
Emerging Market Corporate
Residential MBS (non-agency)
Asset-Backed (US & Intl)
Commerical MBS (US & Intl)
Intl Treasury (emerging markets)
Credit Quality (as of 1/31/2012)
P-1 (highest short term rating)
PPT uses a "barbell" approach with regard to credit risk, owning both higher rated and lower rated issues. A rating of Baa or higher is considered investment grade (P-3 or higher for short-term debt). The negative percentage reflects fund strategies designed to enhance performance when certain securities decline in value.
Ticker: PPT Putnam Premiere Income
- Total Net Assets= 824 MM
- Annual Distribution Rate= 6.55%
- Dividend Frequency= Monthly
- Current Monthly Distribution= $0.030 per share ($0.36 per year)
- Baseline Expense ratio= 0.85%
- Discount to NAV= -5.34% 52 week Avg. Discount= -1.84%
- Portfolio Turnover rate= 85%
- Effective Leverage= None
- Effective Duration= -0.93
- Average 3 Mos. Daily Trading Volume= 430,000 shares (about $2.47 MM)
PPT is attractive now as a negative duration, high income play which would perform well if more inflation and higher interest rates develop. It is a good diversifier for other fixed income holdings in a tax deferred retirement account.
I believe the PPT discount to NAV may narrow over the next few months to bring it in line with other high yield bond CEFs which would add to the total return. PPT is fairly liquid and usually trades over 400,000 shares a day. The bid-asked spread is one penny.
Disclosure: I am long PPT.