Sourcing PIMCO High Income Fund's Distributions [View article]
Hi Walt,
These are all great questions.
"Coupon" Yield: While I'm not an accountant, I was under the impression that if I buy a bond at a discount I would amortize the discount into income over its maturity so revenues would reflect the discounted value.
Additionally, if I annualize the interest income for the 6 month period ending September for PHK and divide it by its investments, I would get approximately 8.1% as an annualized yield on investments. So, it’s close enough for government work.
Allocation of investments and revenues: Walt, as you know having been associated with a large investment operation, an investment organization make trades all day and it’s at the end of the day they allocate the trades.
In theory, those trades that worked well could be allocated to any account you choose. This wouldn't favor one fund over another as you're not taking something from one to give to another as those trades haven't been allocated. (This is how Hillary Clinton made a couple of $100,000 trading pork bellies. Her broker just happened to put those trades in her account.)
ROC: As I've indicated this is a "blind spot" as we're not privy to the earnings and profit statements. So, the answer here could be yes.
While I don’t have a position either way in this stock, it just seems to me long-term income investors should be careful of this stock at this juncture. These types of premiums don't typically last unless there is a significant shift in the NAV from here--which is possible for bonds if the world comes apart.
PIMCO's a great organization and Bill Gross seems like a "stand up" guy. I'm just at the "side of the road" waving a "pink flag".
You would have thought that they could have at least merged the fund with several others to give the impression they were looking out for the shareholders' interest.
It is amazing what you accomplish when no one is looking.
PIMCO's CEFs Trading At High Premiums: Is There A PIMCO 'Put'? [View article]
Hi Walt,
So, the research design you're proposing to separate CEFs into those with premiums and discounts at a point in time (let's say 2000 for the sake of a round numbers) and then take a look at their performance over a one, two and three year period from that point in time?
Is that the assignment? Is there a better year for a start point?
PIMCO's CEFs Trading At High Premiums: Is There A PIMCO 'Put'? [View article]
Ira,
Sound to me that that they should change the CEF's name to "PIMCO Street Income Securities Fund". There maybe a "bump" in the share price based upon the PIMCO franchise that is not be exercised in this case.
PIMCO's CEFs Trading At High Premiums: Is There A PIMCO 'Put'? [View article]
ie176
Thanks for your comments.
Since the assets of some of the PIMCO's CEFs are Level II assets, then they are valued on an indirect basis based on models presumably vetted by PIMCO. Therefore, isn't it implied that PIMCO is officially telling you that you're overpaying for certain of their CEFs on a NAV basis?
The other issue is if there is an implied gain in a derivative position would that accrue to NAV? So, that valuation would be a component in the NAV. This would be no different than an unrealized gain in stock accruing to NAV.
Lastly, let's take the example of a CEF that is generating an 8.0% on a $10 NAV, thereby generating $.80 per share. If the share price were 70% higher, or $17 per share, then the yield on the higher price would be 4.7% yield based upon the $.80 per share generated from the portfolio.
Let's assume that the CEF is 30% leverage and pays 0% interest for that leverage. That would add another $.24 per share. Therefore, a CEF that is 30% leveraged, pays no interest on its debt would generate $1.04 in total net investment income before expenses.
Based upon a $10 NAV that yield would be 10.4%. Let say the stock is trading at a 70% premium to NAV. So, based on $1.04 per share based on NAV would be yielding the equivalent of 6.7% based a $17 share price.
Let's take this example one step further. In the case of PHK, it’s yielding 11.4% on its stock price. Based upon it NAV coupon of approximately 8.4% and 30% leveraged costing nothing then the implied yield on its NAV is 10.8% before expenses. However, since PHK's stock is trading at a 65% premium, the implied yield to the stock based on NAV is 6.5%.
Therefore its implied NAV yield of 6.5% represents 57.8% of its 11.4% stock yield ($0.61 per share) and needs to be accounted for that is not based on NII.
Approximately $0.40 per share of the $.61 per share would be a return of capital and the balance $.21 per share would come from other sources not imputed into the NAV.
There is some comfort in the fact that even if the ROC portion of the dividend were to go away the yield would drop to around 8%. However, the real vulnerability arises if there is an increase in interest rates. A rise in interest rates would be quite devastating to this model.
When rates begin to rise there will be a contest between the quick and the dead.
PIMCO's CEFs Trading At High Premiums: Is There A PIMCO 'Put'? [View article]
Investsor RBL
Thank you for your reasoned response.
A couple of points of clarification. The two PIMCO CEFs with the highest premiums, PGP and PHK, have been supporting their monthly distribution with return of capital payments, 35% and 27%, respectively, since late last year.
In the case of PHK, it has a negative UNII (undistributed net investment income) of $0.45 per share--meaning that its distributed more funds than its earned in net investment income.
In all fairness, there are many reasons that there could be a timing difference between GAAP and E&P calculations, that are just that--timing difference.
PIMCO's CEFs Trading At High Premiums: Is There A PIMCO 'Put'? [View article]
Market Slave,
Let me respond collectively to your multiple missives for the purpose of conservation.
First of all, I don't have any dog in this fight. I could personally care less if PIMCO's CEFs share prices go up or down.
As an analyst, I’m curious by nature. I just happen to be fascinated with PIMCO's numbers and their relative valuation compared to a very august peer group, that's all. I also felt that way about the Cornerstone sponsored funds where there was little “nutritional” value to their premiums.
All I'm doing is just laying out the case as to what the numbers are saying recognizing there are multitude of factors impacting stock prices.
While I view most investors as consenting adults, older investors seeking yield should realize that they’re paying up for it in terms of premium valuation. Think of it as a public service message.
Anyhow, I think you should view this as an educable moment.
Why don't you provide for us the logic behind your thinking so we can all benefits from your perspective? It would be helpful in you could provide some facts for your conclusion so we could swing from “clue to clue”.
Extracting 'Environmental Clean-Up Costs' From Wall Street [View article]
cyclingscholar,
If you would indulge me, I would like to tease out of your comments a clearer picture of your thoughts as you've obviously have put some time into thinking about this issue.
Are you suggesting we should de-regulate the financial services industry, as we've done with other industries, as a solution to building a stronger financial service sector?
If so, how? Would this include dismantling the Fed, FDIC, etc? How far should de-regulation go?
My query here is intended to be constructive as I'm interested in novel ideas in addressing complex issues such as rationalizing the underpinnings of our financial infrastructure.
CEF Weekly Review: Focus On Nuveen NJ Premium Income Muni Fund [View article]
rw84041,
No particular reason other that PCEF is more of an index fund and as an ETF it trades close to par.
The concept behind using PCEF is to provide a tradeable benchmark that would not be influenced by portfolio selection. The fact that it only invests in taxable CEFs means that it doesn't represent the diversity of this market sector.
FOF, by contrast, is a CEF that invests in CEFs that is a managed portfolio that trades at a discount and has a component of its distribution is a return of capital.
FOF is certainly a viable alternative for a "one stop shop" for CEF investors.
Extracting 'Environmental Clean-Up Costs' From Wall Street [View article]
Hi Walt,
I'm sure that this is ancient history to many and a vestige of our current capital markets.
It would be instructive to some to better understand the parallels of the impact of the railroads on wealth creation during the late 19th century and that of the internet and social media which has been this generation's market drivers.
It would also be of value to study some of stock market participants at the turn of the 20th century like Jay Gould and Jess Lauriston Livermore to better under how the stock markets speculators operated then and how they operate now.
Not much has changed. The common elements seems to be access to politicians that can legislate favorably and the ability to extract information prior to it being generally distributed. The only difference is with the latter is the technology employed.
To paraphrase Mark Twain, While history may not repeat itself, it sure does rhyme.
Extracting 'Environmental Clean-Up Costs' From Wall Street [View article]
cyclingscholar,
We all due respect, you apparently didn't read the article carefully. I offer the following direct quote to help clarify my position and your confusion:
"We need to go back to a risk-management structure that places that burden on the economics of the business and the people that run them and not the backs of ill-conceived, backward looking regulations-as the regulators will ultimately be steps behind the operators."
I too am in contempt of statutory regulations written by people that don't understand the business and will forever by "behind the curve" in anticipating new risks to the business.
I'm more in favor of bring back the "invisible hand" of economic forces that were operational in the partnership era where there was a direct economic impact on bad risk-management systems and a better actuarial "premium" on systematic risks.
Sourcing PIMCO High Income Fund's Distributions [View article]
These are all great questions.
"Coupon" Yield: While I'm not an accountant, I was under the impression that if I buy a bond at a discount I would amortize the discount into income over its maturity so revenues would reflect the discounted value.
Additionally, if I annualize the interest income for the 6 month period ending September for PHK and divide it by its investments, I would get approximately 8.1% as an annualized yield on investments. So, it’s close enough for government work.
Allocation of investments and revenues: Walt, as you know having been associated with a large investment operation, an investment organization make trades all day and it’s at the end of the day they allocate the trades.
In theory, those trades that worked well could be allocated to any account you choose. This wouldn't favor one fund over another as you're not taking something from one to give to another as those trades haven't been allocated. (This is how Hillary Clinton made a couple of $100,000 trading pork bellies. Her broker just happened to put those trades in her account.)
ROC: As I've indicated this is a "blind spot" as we're not privy to the earnings and profit statements. So, the answer here could be yes.
While I don’t have a position either way in this stock, it just seems to me long-term income investors should be careful of this stock at this juncture. These types of premiums don't typically last unless there is a significant shift in the NAV from here--which is possible for bonds if the world comes apart.
PIMCO's a great organization and Bill Gross seems like a "stand up" guy. I'm just at the "side of the road" waving a "pink flag".
Regards
CEF Weekly Review: MFS Investment Grade Muni Focus [View article]
You would have thought that they could have at least merged the fund with several others to give the impression they were looking out for the shareholders' interest.
It is amazing what you accomplish when no one is looking.
Regards.
PIMCO's CEFs Trading At High Premiums: Is There A PIMCO 'Put'? [View article]
So, the research design you're proposing to separate CEFs into those with premiums and discounts at a point in time (let's say 2000 for the sake of a round numbers) and then take a look at their performance over a one, two and three year period from that point in time?
Is that the assignment? Is there a better year for a start point?
Best
PIMCO's CEFs Trading At High Premiums: Is There A PIMCO 'Put'? [View article]
Sound to me that that they should change the CEF's name to "PIMCO Street Income Securities Fund". There maybe a "bump" in the share price based upon the PIMCO franchise that is not be exercised in this case.
PIMCO's CEFs Trading At High Premiums: Is There A PIMCO 'Put'? [View article]
Thanks for your comments.
Since the assets of some of the PIMCO's CEFs are Level II assets, then they are valued on an indirect basis based on models presumably vetted by PIMCO. Therefore, isn't it implied that PIMCO is officially telling you that you're overpaying for certain of their CEFs on a NAV basis?
The other issue is if there is an implied gain in a derivative position would that accrue to NAV? So, that valuation would be a component in the NAV. This would be no different than an unrealized gain in stock accruing to NAV.
Lastly, let's take the example of a CEF that is generating an 8.0% on a $10 NAV, thereby generating $.80 per share. If the share price were 70% higher, or $17 per share, then the yield on the higher price would be 4.7% yield based upon the $.80 per share generated from the portfolio.
Let's assume that the CEF is 30% leverage and pays 0% interest for that leverage. That would add another $.24 per share. Therefore, a CEF that is 30% leveraged, pays no interest on its debt would generate $1.04 in total net investment income before expenses.
Based upon a $10 NAV that yield would be 10.4%. Let say the stock is trading at a 70% premium to NAV. So, based on $1.04 per share based on NAV would be yielding the equivalent of 6.7% based a $17 share price.
Let's take this example one step further. In the case of PHK, it’s yielding 11.4% on its stock price. Based upon it NAV coupon of approximately 8.4% and 30% leveraged costing nothing then the implied yield on its NAV is 10.8% before expenses. However, since PHK's stock is trading at a 65% premium, the implied yield to the stock based on NAV is 6.5%.
Therefore its implied NAV yield of 6.5% represents 57.8% of its 11.4% stock yield ($0.61 per share) and needs to be accounted for that is not based on NII.
Approximately $0.40 per share of the $.61 per share would be a return of capital and the balance $.21 per share would come from other sources not imputed into the NAV.
There is some comfort in the fact that even if the ROC portion of the dividend were to go away the yield would drop to around 8%. However, the real vulnerability arises if there is an increase in interest rates. A rise in interest rates would be quite devastating to this model.
When rates begin to rise there will be a contest between the quick and the dead.
Regards
PIMCO's CEFs Trading At High Premiums: Is There A PIMCO 'Put'? [View article]
Thanks for the "heads up".
Best
PIMCO's CEFs Trading At High Premiums: Is There A PIMCO 'Put'? [View article]
Thank you for your reasoned response.
A couple of points of clarification. The two PIMCO CEFs with the highest premiums, PGP and PHK, have been supporting their monthly distribution with return of capital payments, 35% and 27%, respectively, since late last year.
In the case of PHK, it has a negative UNII (undistributed net investment income) of $0.45 per share--meaning that its distributed more funds than its earned in net investment income.
In all fairness, there are many reasons that there could be a timing difference between GAAP and E&P calculations, that are just that--timing difference.
Thanks for your input.
PIMCO's CEFs Trading At High Premiums: Is There A PIMCO 'Put'? [View article]
Let me respond collectively to your multiple missives for the purpose of conservation.
First of all, I don't have any dog in this fight. I could personally care less if PIMCO's CEFs share prices go up or down.
As an analyst, I’m curious by nature. I just happen to be fascinated with PIMCO's numbers and their relative valuation compared to a very august peer group, that's all. I also felt that way about the Cornerstone sponsored funds where there was little “nutritional” value to their premiums.
All I'm doing is just laying out the case as to what the numbers are saying recognizing there are multitude of factors impacting stock prices.
While I view most investors as consenting adults, older investors seeking yield should realize that they’re paying up for it in terms of premium valuation. Think of it as a public service message.
Anyhow, I think you should view this as an educable moment.
Why don't you provide for us the logic behind your thinking so we can all benefits from your perspective? It would be helpful in you could provide some facts for your conclusion so we could swing from “clue to clue”.
We’re all ears.
Regards
PIMCO's CEFs Trading At High Premiums: Is There A PIMCO 'Put'? [View article]
I agree with your conclusion that the "facts" will not get in the way of sustained PIMCO CEFs' overvaluation until rates rise.
I hope the door will be big enough for everyone to get out at the same time when that occurs.
CEF Weekly Review: Focus On Nuveen NJ Premium Income Muni Fund [View article]
Extracting 'Environmental Clean-Up Costs' From Wall Street [View article]
If you would indulge me, I would like to tease out of your comments a clearer picture of your thoughts as you've obviously have put some time into thinking about this issue.
Are you suggesting we should de-regulate the financial services industry, as we've done with other industries, as a solution to building a stronger financial service sector?
If so, how? Would this include dismantling the Fed, FDIC, etc? How far should de-regulation go?
My query here is intended to be constructive as I'm interested in novel ideas in addressing complex issues such as rationalizing the underpinnings of our financial infrastructure.
Regards.
CEF Weekly Review: Focus On Nuveen NJ Premium Income Muni Fund [View article]
No particular reason other that PCEF is more of an index fund and as an ETF it trades close to par.
The concept behind using PCEF is to provide a tradeable benchmark that would not be influenced by portfolio selection. The fact that it only invests in taxable CEFs means that it doesn't represent the diversity of this market sector.
FOF, by contrast, is a CEF that invests in CEFs that is a managed portfolio that trades at a discount and has a component of its distribution is a return of capital.
FOF is certainly a viable alternative for a "one stop shop" for CEF investors.
I hope this is helpful.
Extracting 'Environmental Clean-Up Costs' From Wall Street [View article]
I'm sure that this is ancient history to many and a vestige of our current capital markets.
It would be instructive to some to better understand the parallels of the impact of the railroads on wealth creation during the late 19th century and that of the internet and social media which has been this generation's market drivers.
It would also be of value to study some of stock market participants at the turn of the 20th century like Jay Gould and Jess Lauriston Livermore to better under how the stock markets speculators operated then and how they operate now.
Not much has changed. The common elements seems to be access to politicians that can legislate favorably and the ability to extract information prior to it being generally distributed. The only difference is with the latter is the technology employed.
To paraphrase Mark Twain, While history may not repeat itself, it sure does rhyme.
Extracting 'Environmental Clean-Up Costs' From Wall Street [View article]
We all due respect, you apparently didn't read the article carefully. I offer the following direct quote to help clarify my position and your confusion:
"We need to go back to a risk-management structure that places that burden on the economics of the business and the people that run them and not the backs of ill-conceived, backward looking regulations-as the regulators will ultimately be steps behind the operators."
I too am in contempt of statutory regulations written by people that don't understand the business and will forever by "behind the curve" in anticipating new risks to the business.
I'm more in favor of bring back the "invisible hand" of economic forces that were operational in the partnership era where there was a direct economic impact on bad risk-management systems and a better actuarial "premium" on systematic risks.
CEF Weekly Review: Focus On PIMCO High Income Fund [View article]
Love to here your reasoning for your position. Is it strictly an interest rate call?