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Michael Fabian  

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  • Why I'm Not Adding To The PIMCO Dynamic Income Fund [View article]

    I don't submit my articles to SA very often anymore, but you can subscribe to our blog at I write CEF articles about once a week and they get syndicated to a few other places, but our blog has the most up to date content.

    PDI still carries a large notional amount of long maturity pay fixed swaps to hedge interest rate risk. Yet the portfolio's spread/credit characteristics have changed since I wrote this article. I'll do an update either this week or next. For what its worth, the fund is still one of the largest holdings in our managed CEF portfolio. You just cant beat the underlying portfolio income generation/UNII figures, plus they recently raised the dividend... Stay tuned.
    May 11, 2015. 11:51 AM | 1 Like Like |Link to Comment
  • Closed End Fund Discounts Tighten - So What Are You Selling? [View article]
    I think you might be placing too much faith in riding the coat-tails of SEC form 4s from a timing perspective. While I will preface that by saying I have not sold a penny of PCI or PDI, yet... it's because I don't believe there is an immediate need to. I like to write about my thoughts in real time, and then begin to ponder how I might change our portfolio in the future.

    However, I think its important that you understand that institutional money managers can't get as strategic when it comes to timing their portfolio changes in the same way you or I could. They are beholden to quarterly in-house compliance reviews of every position they own, and alerting compliance personnel of any unplanned sales or purchases. More specifically, in the case of CEFs, control personel are often restricted to windows to purchase shares due to fund reporting and announcement schedules. Furthermore, depending on a firm's internal policies with regard to owning sponsor funds with insider knowledge, they may actually never be able to sell that holding while still occupying a control position within the firm. Meaning any investment they make carries no ability to time the underlying holdings or premium/discount in the first place.

    So as I'm sure Bill has a lot of faith in Ivascyn's funds (which should come as no surprise since he was just promoted to deputy CIO) he isn't looking at the next 6 months of potential ownership while comparing the opportunity costs of owning other funds in the CEF universe. I will also note that his investments in the funds probably represent less than 1% of his net worth. Think about the last time you invested less than 1% of your net worth and then concerned yourself with executing perfect timing?

    Other structural influences likely exist within a firm culture like PIMCO's, such as timing new investments in the wake of a quarterly, semi-annual, or annual bonus schedule. Keep in mind Ivascyn probably easily tops $100MM per year in compensation, while Gross could reach over $200MM per year.

    While I think trolling Form 4's provides good anecdotal insight on portfolio managers that eat their own cooking; I don't think they should be put at the fulcrum for any investment decision with your own hard earned assets.
    May 25, 2014. 02:10 PM | 3 Likes Like |Link to Comment
  • 3 Unique Multi-Sector Income Strategies [View article]

    While I'm confident that if interest rates rise swiftly or slowly over time alongside a strong credit environment that both underlying portfolios will likely exhibit strong relative performance amongst their peers. But as I'm sure you are probably aware, the market price can and probably will react completely different to such changes.

    It might be more of a behavioral finance observation, but when 100% of any group of people unilaterally believe and then agree on only one outcome when there are so many different variables in play. It makes me gravitate toward the opposite side of their hypothesis. But thats what makes a market I guess.

    Although I do believe in the ultimate destination, that rates will rise, I just don't think the journey is going to be as linear as these economists are suggesting in their comments to investors.

    While I'm not familiar with Samuel Lee over at Morningstar and wasn't aware that Morningstar had CEF portfolio recommendations made by an analyst. If we do have similar portfolios, we are probably like minded in our approach to weighting certain CEF characteristics highly in our own individual research processes.
    Apr 28, 2014. 10:19 PM | 1 Like Like |Link to Comment
  • 3 Unique Multi-Sector Income Strategies [View article]
    As Fibonacci S. points out, perform your due diligence carefully, and don't rely on 3rd party data so readily without double checking the facts.

    PCI does have positive UNII during the last reporting period.
    Apr 28, 2014. 10:00 PM | Likes Like |Link to Comment
  • 3 Unique Multi-Sector Income Strategies [View article]
    I agree with exactly the point Fibonacci S is making, in the case of PCI for example, most data feeds (including the one cefconnect utilizes) do not include swap income. Which is a significant contribution to the total annual earnings for the fund. So much so that PCI does in fact have a positive UNII over the last reporting period. If you look at the annual report, you can see from the foot notes that swap income is separate.

    In another example, DSL is just beginning to report full year operating history with a fully invested portfolio. Starting with 100% cash can throw off earnings data until new fixed income purchases are fully settled, and cash flows/accruals begin contributing to investment income. In addition, I was on a recent conference call where Jeffrey Gundlach was bold enough to make the assertion that DSL likely would cover its distribution or beat it by a small margin in 2014.
    Apr 28, 2014. 09:53 PM | 1 Like Like |Link to Comment
  • Why DoubleLine Is Right On The Money [View article]
    I agree, Gundlach is using a small quality/credit balance within the MBS sleeve allocating to both non-agency and agency, but that's about it. However, like you pointed out EM credit is essentially a directional bet, he doesn't use IR, CDS, or currency hedges, so it will be interesting to see how the portfolio evolves over time. Or if he takes swift action to counteract volatility (my guess here is probably not since there is no liquidation requirement). I also couldn't agree more that DSL's underlying portfolio needs to be monitored closely. Not so much a "set and forget it" fund like some of his OE variants.

    DBL appears to me to be a DBLTX portfolio on steroids: long duration, and a good amount of inverse floaters, I/Os, and other agency derivatives.

    Thank you for the compliment on our website, we very much appreciate it!
    Feb 21, 2014. 12:55 PM | Likes Like |Link to Comment
  • CEF Investors: Your Window Of Opportunity Is Beginning To Close [View article]
    You could be right, and you make very valid points. There are many underwater owners since these were two of the largest CEF IPOs in history. However, I still believe that through superior expertise in management, and large leverage ratios, they make great plays for a tightening credit environment. Meaning strong NAV performance could ultimately drag the market price higher, all the while collecting roughly an 8.5% yield on market price.

    They are both diversified amongst F/C HY corporates, F/R loans, and non-agency MBS. In addition to special situations: PCI has a distressed debt sleeve, while DSL has a larger EM debt sleeve. They are also not hedged to the extent PDI is, so it could make for an interesting 4th quarter.

    Thanks again for the comments.
    Oct 18, 2013. 03:35 PM | 3 Likes Like |Link to Comment
  • CEF Investors: Your Window Of Opportunity Is Beginning To Close [View article]

    We were about 50% cash going into the CEF selloff, making sales in DBL, PKO, reductions in GOF, etc right about the time I wrote this article:

    I obviously underestimated how much rates would ultimately rise, however, like the article says, I focus on NAV performance vs. market price performance. As market prices slipped in relation to their TTM average Prem/Disc. NAVs held up relatively well, so I continued to add to positions during the correction. As of right now the portfolio is roughly 95% invested.

    Its nice to see some relief off the lows, and on a total return basis we have some healthy gains on most positions. I was actually expecting the treasury default would stir up more volatility, but it never came to pass (we did not sell any positions as a result of the treasury default fears). The two positions we continued to add to during the last week was DSL and PCI with proceeds from HNW. I tweet about certain additions like that, so join our twitter feed for additional play by play.
    Oct 18, 2013. 03:00 PM | 2 Likes Like |Link to Comment
  • CEF Investors: Your Window Of Opportunity Is Beginning To Close [View article]
    I agree JustGiveMeDividends, I should have mentioned the recent bump in dividend for PDI from 0.177 to 0.191 cents per month (roughly 8% increase).

    The large special distribution will likely have to be made for the fund to avoid paying taxes on the additional income it has been receiving most of the year.

    Thank you for your comment.
    Oct 18, 2013. 02:03 PM | 1 Like Like |Link to Comment
  • Interest Rates Have Stabilized: Why Aren't Discounts Narrowing? [View article]
    AWF isn't a fund that I cover to the extent I have read through their most recent filings and reports, so I would definitely point you in that direction to glean some more specifics on its portfolio.

    However, at first glance they have a consistent payout history, good UNII, and its currently trading at a healthy discount to its 12 month trailing average premium. All good characteristics.

    Just be sure that the manager's style aligns well with your personal income/total return goals. Thanks for the comment.
    Jul 30, 2013. 12:53 PM | Likes Like |Link to Comment
  • Interest Rates Have Stabilized: Why Aren't Discounts Narrowing? [View article]
    NII stands for "Net Investment Income", which is basically a measure of what a portfolio is earning in income, in excess of it's expenses, but before taxes.

    UNII stands for "Undistributed Net Investment Income", which is what a portfolio earns in income in excess of its distributions to shareholders. A CEF that over-distributes could simply be returning capital to shareholders (ROC). It can get even more complicated when you start looking at distribution from capital gains, or income from derivatives etc.

    I try to avoid those funds that regularly return large amounts of capital to investors whenever possible, but there are always a few exceptions.
    Jul 25, 2013. 11:43 AM | 1 Like Like |Link to Comment
  • Interest Rates Have Stabilized: Why Aren't Discounts Narrowing? [View article]
    Looking at their most recent filings, EHI is 95.4% U.S. Dollar denominated, and I believe HYI is 96% U.S. Dollar denominated.

    Looking at a chart of the U.S Dollar, its mostly unchanged on a 1 year basis, it certainly fell, then rallied, but no discernible trend.
    Jul 24, 2013. 12:38 PM | 1 Like Like |Link to Comment
  • Interest Rates Have Risen: So Have Senior Loans Worked? [View article]

    For CEF's you usually need to get into the semi/annual reports to ascertain the aggregate reset of the entire portfolio.

    With ETFs and Mutual funds, the figure is typically posted quarterly. Furthermore, If you own a passively managed fund, you know it will remain static between rebalancing periods.

    Most every (highly diversified) portfolio I have analyzed is in that 45-60 day window. Thanks.
    Jul 17, 2013. 11:01 AM | Likes Like |Link to Comment
  • 2 More Great Reasons To Invest In Closed-End Funds [View article]
    Not necessarily, That purely depends on the manager's risk management and/or hedging practices.

    Which is exactly my point, there is no "forced" transition. A manager can simply ride out the volatility without doing a thing. Volatility always comes and goes, the most damaging thing to portfolio performance is poor security selection, and buying or selling at an inopportune time.

    In addition, CEFs are typically allocated differently than OEFs. Using the above example, GOF's NAV outperformed GIOAX's NAV by a margin of over 4% YTD. Which can't only be attributable to leverage. When putting the two portfolios side-by-side, there are some real differences.
    Jul 2, 2013. 07:14 PM | Likes Like |Link to Comment
  • 2 More Great Reasons To Invest In Closed-End Funds [View article]
    I agree, for those that arent interested in CEF's. However, there are some subtle differences in portfolio construction, and it only makes sense to purchase this fund on a load-waived basis.
    Jul 2, 2013. 12:38 PM | Likes Like |Link to Comment