Sourcing PIMCO High Income Fund's Distributions [View article]
RichAbe,
For rhetorical purposes, and not to impugn the integrity of the PIMCO organization, let me address your two suppositions which appear less than rigorous.
“It is completely illegal to allocate winning trades to one account and losers to another.”
It is also illegal to late-trade mutual funds both under the SEC and the NY State’s Martin Act. However in 2003, the NY state attorney general filed suits against several mutual fund complexes for late-trading practices which seemed to become a widespread industry practice. This action was followed by investigations by the SEC.
These charges led to the resignation of the chairmen of two major mutual complexes, Strong Mutual Funds and Putnam Investments. Later Invesco and Prudential Securities were added to the implicated funds companies.
On February 20, 2004, the first in a series of securities class action complaints was filed against Allianz Dresdner Asset Management of America L.P. (n/k/a Allianz Global Investors of America L.P.), and related entities alleging market-timing and late trading in the mutual funds in the Allianz Family of Funds in violation of the federal securities laws. Each of these nine funds were part of the PIMCO Funds: Multi-Manager Series, now known as the Allianz Funds. http://bit.ly/IPbI7M
Wall Street has benefited from the strategy of “asking for forgiveness as oppose to permission”. Do you really think that legal compensation for such infractions equals the money made by perpetuating them? If you can pay a fine to the SEC with neither admitting nor deny the allegations then I think this is a good business model.
As it relates to your other observation regarding questionable securities trading, all you have to do is look to Pipeline brokerage platform, which was “gaming” their customers’ trades, and any of the “dark pool” where the inability of tracing the source of the orders is the purpose of their existence.
Good analysts and investors are both skeptical and suspicious by nature. This may just be a character flaw. However, no one should get a “bye” in this business without answering legitimate questions.
Sourcing PIMCO High Income Fund's Distributions [View article]
JedgarH,
I research investment companies for my own and our clients accounts and the CEF market sector in a component of that universe.
PHK is a component of CEFs which in turn is a component of investment companies and is a point of comparative valuation.
Consequently, to understand the mechanics of PHK's valuation would help on a comparative basis with the valuation others in that investment universe.
(Think of it as wanting to understand the valuation of Coke versus Pepsi, even if I only owned Coke and not Pepsi. Or more basically, why someone would want to know the value of an index of a industry group relative to the stocks in it.)
More importantly, I was reaching out to the larger investment community to help me understand what I was missing in my detailed valuation of the PHK.
So, far, no one has provided a compelling reason why it's fundamentally valued at these levels--particularly relative to its peer group.
So, those are the some reasons one might what to understand the valuation of a stock that they don't own.
PCEF: How Marginal CEF Investors Can Avoid Being 'Gamed' [View article]
RichAbe
Just a point of clarification. The 1.56% in expenses that you cite included the underlying expenses of the CEF itself (1.06% on average) plus the fee for the ETF itself which is 0.50%. http://bit.ly/Ijzmvs
So, you would only save 0.50% employing your strategy as opposed to the 1.56% that you cite--as you would be picking up the CEF management fees (on average 1.06%).
While losing diversification, your recommendation has merit for those willing to put in a modicum of effort.
Sourcing PIMCO High Income Fund's Distributions [View article]
Huck2u
With all due respect, to intimate that we have provided the wrong parameters for valuing PHK while not providing any basis for your assertion is disingenuous at best.
The reason I when to the trouble of providing a proof is for some genius like you to point our the inaccuracies so we can all better understand how PHK works.
It would surely be helpful if you provide us the correct parameters for valuing PHK because there are a lot of folks that could benefit from your insight.
As to admitting to the fact that I've been wrong on the trajectory of the stock, I've confessed to this in all the articles I've written about PHK as I did in this one:
"8. Lastly, we've previously been consistently wrong on the trajectory of this stock and believe the stock will likely continue to be over-valuated until there is a rise in interest rates."
Lastly, I could care less regarding the stock price since I've never owned it. I fall in Warren Buffett's camp of if I don't understand it, I'm not going to invest in it. (This is how he avoided the "tech wreck".)
So, we're looking forward to seeing your detail proof on how PHK makes the arithmetic work.
You would be providing a great service to your fellow investors.
PCEF: How Marginal CEF Investors Can Avoid Being 'Gamed' [View article]
FAMCO
Two items for the purpose of clarification.
The first is we covered the issue regarding PCEF purchasing a particular CEF at a premium by highlighting the fact that the diversification of its portfolio cause the average premium of the portfolio to gravitate towards the mean, which for all fixed-income CEFs in my universe is around par. Here is the following text from the article:
"2. It offers diversification through its multiple CEF holdings of a CEF index that mitigate large CEF premiums allowing the average prem/disc of the index to gravitate to the sector mean which is currently at par;"
The second may be a misunderstanding with regards to our position in PCEF. We do not consider PCEF as a putz investment. In fact we think it is an antidote to picking a single high yielding CEF regardless of the premium. Therefore, it represents, in our opinion, an anti-putz investment.
PCEF: How Marginal CEF Investors Can Avoid Being 'Gamed' [View article]
Mark Bruns
Thanks for your comments
ADX is a good object lesson for the hypothesis that distribution yields are important in premium/discount valuation.
ADX has traded at substantial discount for a significant amount of time. Yet, it has paid out a year-end capital gain that has historically amounted to 5% to 6% total annual distribution per share price.
Yet, because of ADX’s distribution policy of paying out a $0.05 quarterly distribution and supplementing it with a one-time capital gains distribution at year-end, the major financial quotation services do not incorporate the capital gains distribution into the yield. Both in the WSJ and Yahoo quote its distribution yield below 2.0%.
If ADX moved to a managed distribution policy where they could incorporate its capital gains distribution into quarterly distribution payments the quotation services would likely pick up the quarterly annualized rate and investors would receive their distribution rate-ably over the year. This would place its quoted yield at approximately 6.0%. This would be an attractive advertised yield.
As it relates to ADX versus PCEF, since the end of 2010 on a total return basis PCEF has outperformed ADX 8.5 to 8.0%. YTD ADX has outperformed PCEF 12.7% to 8.0%. However, PCEF’s 3-year standard deviation is 9.2% versus 17.4 for ADX. So, for conservative investors looking for an attractive yield with low volatility, PCEF may be a better alternative than ADX on a risk-adjusted basis .
ADX could immediately add 17% return to the shareholders by opting to become an actively managed ETF. They could keep their advisor intact and structure similar to its CEF wrapper.
The management at ADX is competent; its board is not.
CEF Weekly Review: Aberdeen Chile Fund In Focus [View article]
Leemex
Most of the literature I've read on portfolio diversification is that you typically only need about a dozen or so stocks to achieve the diversification you desire.
The issue is alway accurate selection. Beyond that number additional stocks will only have marginal diversification benefits.
On Monday I'll send to your SeekingAlpha email information that will enable access to that portion of our website allowing you to peruse those portfolios.
Sourcing PIMCO High Income Fund's Distributions [View article]
Walt,
My experience is on the sell side, so I defer to your knowledge and will "draw a line" through that point going forward.
The question you pose regarding the distribution characterization of earnings from the accretion is an interesting one. I would assume that any accretion, if not characterized as income, it would be characterized as capital gains and therefore not characterized as a return of capital.
As it relates to the CEFConnect "coupon" calculation, I'll have to inquire.
Lastly, let me say the I'm appreciative of the quality of the comments and that I've learned a lot from them.
Sourcing PIMCO High Income Fund's Distributions [View article]
RichAbe,
Thanks for your comments, they're always thoughtful.
Let me see if I can help to clarify some of my comments and your impressions of them.
Apparently you've never worked at an investment bank to appreciation the relationship between a major and multiple issuer of securities and their client.
Many of these firms make markets in the stocks of their clients for which they are underwriters (a very lucrative business) and have their own inventories and economic interests that may be aligned with PIMCO and are not directly or legally affiliated with PIMCO.
As it relates to allocation of trades, all that has to be identified is that the trades are consistent with the objectives of the fund to which it's being allocated. However, I'd be happy to learn something new if you can cite the regs or PIMCO's internal policy on this latter point.
PIMCO's CEFs Trading At High Premiums: Is There A PIMCO 'Put'? [View article]
Nofway,
PIMCO is a significant franchise in the fixed-income business and in times of uncertainty they will gravitate to what is comfortable: fixed-income and a branded product like PIMCO.
Section 19 notices are somewhat confusing to even some professionals. My understanding of the Section 19 Notice is that it is a requirement under managed distribution program that allows a CEF to distribute their capital gains more than once a year.
I believe, and I could be wrong, that a CEF doesn't need to have SEC approval to distribute a return of capital.
If your understanding of this is different please let me know.
Sourcing PIMCO High Income Fund's Distributions [View article]
Frogmatic,
Thanks for your comments:
1) Since we do a lot of database work we typically don't use space between word as it would require an underscore, so it has become more of a habit. However, we try to write out the word and follow it by ("TtlNII") so at least we've defined what we're talking about later in the article. This is common practice in legal documents.
2) Can do. I'll send it to your through the SeekingAlpha e-mail system.
3) Getting a short position is difficult in PHK as anyone who has tried will tell you. The other issue is funding the 11.5% annualized distribution you'd have to fund during this period. Seems like a lot of "brain damage".
Investors Ignore Distribution Declines In Fixed-Income Closed End Funds [View article]
All I'm doing is reporting the facts. Everyone gets to make up their own mind.
It appears investors are comfortable with these set of facts.
Sourcing PIMCO High Income Fund's Distributions [View article]
Only with a small "u".
Sourcing PIMCO High Income Fund's Distributions [View article]
For rhetorical purposes, and not to impugn the integrity of the PIMCO organization, let me address your two suppositions which appear less than rigorous.
“It is completely illegal to allocate winning trades to one account and losers to another.”
It is also illegal to late-trade mutual funds both under the SEC and the NY State’s Martin Act. However in 2003, the NY state attorney general filed suits against several mutual fund complexes for late-trading practices which seemed to become a widespread industry practice. This action was followed by investigations by the SEC.
These charges led to the resignation of the chairmen of two major mutual complexes, Strong Mutual Funds and Putnam Investments. Later Invesco and Prudential Securities were added to the implicated funds companies.
On February 20, 2004, the first in a series of securities class action complaints was filed against Allianz Dresdner Asset Management of America L.P. (n/k/a Allianz Global Investors of America L.P.), and related entities alleging market-timing and late trading in the mutual funds in the Allianz Family of Funds in violation of the federal securities laws. Each of these nine funds were part of the PIMCO Funds: Multi-Manager Series, now known as the Allianz Funds. http://bit.ly/IPbI7M
Wall Street has benefited from the strategy of “asking for forgiveness as oppose to permission”. Do you really think that legal compensation for such infractions equals the money made by perpetuating them? If you can pay a fine to the SEC with neither admitting nor deny the allegations then I think this is a good business model.
As it relates to your other observation regarding questionable securities trading, all you have to do is look to Pipeline brokerage platform, which was “gaming” their customers’ trades, and any of the “dark pool” where the inability of tracing the source of the orders is the purpose of their existence.
Good analysts and investors are both skeptical and suspicious by nature. This may just be a character flaw. However, no one should get a “bye” in this business without answering legitimate questions.
Regards.
Sourcing PIMCO High Income Fund's Distributions [View article]
Thanks for your perspective.
As you suggest, it may remain one of the mysteries of life.
Regards.
Sourcing PIMCO High Income Fund's Distributions [View article]
I research investment companies for my own and our clients accounts and the CEF market sector in a component of that universe.
PHK is a component of CEFs which in turn is a component of investment companies and is a point of comparative valuation.
Consequently, to understand the mechanics of PHK's valuation would help on a comparative basis with the valuation others in that investment universe.
(Think of it as wanting to understand the valuation of Coke versus Pepsi, even if I only owned Coke and not Pepsi. Or more basically, why someone would want to know the value of an index of a industry group relative to the stocks in it.)
More importantly, I was reaching out to the larger investment community to help me understand what I was missing in my detailed valuation of the PHK.
So, far, no one has provided a compelling reason why it's fundamentally valued at these levels--particularly relative to its peer group.
So, those are the some reasons one might what to understand the valuation of a stock that they don't own.
I hope this is helpful.
Regards.
PCEF: How Marginal CEF Investors Can Avoid Being 'Gamed' [View article]
Just a point of clarification. The 1.56% in expenses that you cite included the underlying expenses of the CEF itself (1.06% on average) plus the fee for the ETF itself which is 0.50%. http://bit.ly/Ijzmvs
So, you would only save 0.50% employing your strategy as opposed to the 1.56% that you cite--as you would be picking up the CEF management fees (on average 1.06%).
While losing diversification, your recommendation has merit for those willing to put in a modicum of effort.
Regards
Sourcing PIMCO High Income Fund's Distributions [View article]
With all due respect, to intimate that we have provided the wrong parameters for valuing PHK while not providing any basis for your assertion is disingenuous at best.
The reason I when to the trouble of providing a proof is for some genius like you to point our the inaccuracies so we can all better understand how PHK works.
It would surely be helpful if you provide us the correct parameters for valuing PHK because there are a lot of folks that could benefit from your insight.
As to admitting to the fact that I've been wrong on the trajectory of the stock, I've confessed to this in all the articles I've written about PHK as I did in this one:
"8. Lastly, we've previously been consistently wrong on the trajectory of this stock and believe the stock will likely continue to be over-valuated until there is a rise in interest rates."
Lastly, I could care less regarding the stock price since I've never owned it. I fall in Warren Buffett's camp of if I don't understand it, I'm not going to invest in it. (This is how he avoided the "tech wreck".)
So, we're looking forward to seeing your detail proof on how PHK makes the arithmetic work.
You would be providing a great service to your fellow investors.
Regards
PCEF: How Marginal CEF Investors Can Avoid Being 'Gamed' [View article]
Two items for the purpose of clarification.
The first is we covered the issue regarding PCEF purchasing a particular CEF at a premium by highlighting the fact that the diversification of its portfolio cause the average premium of the portfolio to gravitate towards the mean, which for all fixed-income CEFs in my universe is around par. Here is the following text from the article:
"2. It offers diversification through its multiple CEF holdings of a CEF index that mitigate large CEF premiums allowing the average prem/disc of the index to gravitate to the sector mean which is currently at par;"
The second may be a misunderstanding with regards to our position in PCEF. We do not consider PCEF as a putz investment. In fact we think it is an antidote to picking a single high yielding CEF regardless of the premium. Therefore, it represents, in our opinion, an anti-putz investment.
I hope this helps clarify our positions.
Regards.
PCEF: How Marginal CEF Investors Can Avoid Being 'Gamed' [View article]
Thanks for your comments
ADX is a good object lesson for the hypothesis that distribution yields are important in premium/discount valuation.
ADX has traded at substantial discount for a significant amount of time. Yet, it has paid out a year-end capital gain that has historically amounted to 5% to 6% total annual distribution per share price.
Yet, because of ADX’s distribution policy of paying out a $0.05 quarterly distribution and supplementing it with a one-time capital gains distribution at year-end, the major financial quotation services do not incorporate the capital gains distribution into the yield. Both in the WSJ and Yahoo quote its distribution yield below 2.0%.
If ADX moved to a managed distribution policy where they could incorporate its capital gains distribution into quarterly distribution payments the quotation services would likely pick up the quarterly annualized rate and investors would receive their distribution rate-ably over the year. This would place its quoted yield at approximately 6.0%. This would be an attractive advertised yield.
As it relates to ADX versus PCEF, since the end of 2010 on a total return basis PCEF has outperformed ADX 8.5 to 8.0%. YTD ADX has outperformed PCEF 12.7% to 8.0%. However, PCEF’s 3-year standard deviation is 9.2% versus 17.4 for ADX. So, for conservative investors looking for an attractive yield with low volatility, PCEF may be a better alternative than ADX on a risk-adjusted basis .
ADX could immediately add 17% return to the shareholders by opting to become an actively managed ETF. They could keep their advisor intact and structure similar to its CEF wrapper.
The management at ADX is competent; its board is not.
Regards
CEF Weekly Review: Aberdeen Chile Fund In Focus [View article]
Most of the literature I've read on portfolio diversification is that you typically only need about a dozen or so stocks to achieve the diversification you desire.
The issue is alway accurate selection. Beyond that number additional stocks will only have marginal diversification benefits.
On Monday I'll send to your SeekingAlpha email information that will enable access to that portion of our website allowing you to peruse those portfolios.
Regards
Sourcing PIMCO High Income Fund's Distributions [View article]
My experience is on the sell side, so I defer to your knowledge and will "draw a line" through that point going forward.
The question you pose regarding the distribution characterization of earnings from the accretion is an interesting one. I would assume that any accretion, if not characterized as income, it would be characterized as capital gains and therefore not characterized as a return of capital.
As it relates to the CEFConnect "coupon" calculation, I'll have to inquire.
Lastly, let me say the I'm appreciative of the quality of the comments and that I've learned a lot from them.
Best,
Sourcing PIMCO High Income Fund's Distributions [View article]
Thanks for the tutorial on the perils of shorting CEFs.
Regards
Sourcing PIMCO High Income Fund's Distributions [View article]
Thanks for your comments, they're always thoughtful.
Let me see if I can help to clarify some of my comments and your impressions of them.
Apparently you've never worked at an investment bank to appreciation the relationship between a major and multiple issuer of securities and their client.
Many of these firms make markets in the stocks of their clients for which they are underwriters (a very lucrative business) and have their own inventories and economic interests that may be aligned with PIMCO and are not directly or legally affiliated with PIMCO.
As it relates to allocation of trades, all that has to be identified is that the trades are consistent with the objectives of the fund to which it's being allocated. However, I'd be happy to learn something new if you can cite the regs or PIMCO's internal policy on this latter point.
Regards.
PIMCO's CEFs Trading At High Premiums: Is There A PIMCO 'Put'? [View article]
PIMCO is a significant franchise in the fixed-income business and in times of uncertainty they will gravitate to what is comfortable: fixed-income and a branded product like PIMCO.
Section 19 notices are somewhat confusing to even some professionals. My understanding of the Section 19 Notice is that it is a requirement under managed distribution program that allows a CEF to distribute their capital gains more than once a year.
I believe, and I could be wrong, that a CEF doesn't need to have SEC approval to distribute a return of capital.
If your understanding of this is different please let me know.
Best
Sourcing PIMCO High Income Fund's Distributions [View article]
Thanks for your comments:
1) Since we do a lot of database work we typically don't use space between word as it would require an underscore, so it has become more of a habit. However, we try to write out the word and follow it by ("TtlNII") so at least we've defined what we're talking about later in the article. This is common practice in legal documents.
2) Can do. I'll send it to your through the SeekingAlpha e-mail system.
3) Getting a short position is difficult in PHK as anyone who has tried will tell you. The other issue is funding the 11.5% annualized distribution you'd have to fund during this period. Seems like a lot of "brain damage".
I hope this is helpful.