CEF premium curiosity


Efficient markets? Morningstar's Samuel Lee notes the strategy of the  Pimco High Income Fund (PHK +0.4%) is nearly identical to that of the Pimco Corporate Income & Opportunity Fund (PTY +0.6%), yet PHK trades at a 51% premium to NAV vs. PTY at a 23% premium (PTY is slightly less leveraged).

Why? As far as Lee can tell, investors would rather pay $1.51 for $1.00 of assets in PHK than $1.23 for a dollar of assets in PTY simply because PHK offers a higher payout percentage. This payout, however, isn't from greater income, but instead coming from a return of capital.

Of course, this discussion doesn't get into why investors would pay even a 23% premium to NAV in the first place.

From other sites
Comments (74)
  • SimonSaysShort
    , contributor
    Comments (116) | Send Message
     
    Retail investors don't know what they are doing. News at 11.
    4 Mar 2014, 01:33 PM Reply Like
  • vroctrader
    , contributor
    Comments (2) | Send Message
     
    "Of course, this discussion doesn't get into why investors would pay even a 23% premium to NAV in the first place."

     

    Not as smart as you are?
    4 Mar 2014, 01:56 PM Reply Like
  • talllight
    , contributor
    Comments (65) | Send Message
     
    For me, this can be a good risk/reward example.

     

    $PHK gives a higher reward (dividend yield), with a potential 50% downside.
    $PTY gives a lower reward, but with a lower potential downside (20%).

     

    Just my two cents.
    4 Mar 2014, 01:58 PM Reply Like
  • SimonSaysShort
    , contributor
    Comments (116) | Send Message
     
    Except PHK isn't giving you a higher reward. Return of capital is your own money being returned to you. Additionally, there is nothing to prevent both funds from trading at a discount (except for the people who think this is a great deal now) and the underlying NAV could always lose a significant amount of value.
    4 Mar 2014, 02:03 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    PHK is a disaster waiting to happen.
    Its portfolio would be lucky to earn 7% in income from its positions so MAYBE 10% with leverage.
    BUT it needs to earn 18% on its NAV to just keep up with the inflated distribution rate that was established a LOOONG time ago when rates were MUCh higher.
    Instead of doing the right thing and cutting the distribution rate to reflect the current rate environment, PIMCo has chosen to keep it and gamble the farm on derivatives like FX, SWAPS, Futures and Options in order to make up for the 8% "hole" they are in with respect to those 18%.
    They have been lucky so far with a one sided market with little risk but we all know what happens to "too good to be true"
    This is a VERY risky fund that should actually trade at a DISCOUNT to its NAV due to the risky nature of its holdings vs. its peers and much higher volatility.
    Just a game of hot potato with holders/buyers hoping to sell before something hits the fan.
    4 Mar 2014, 02:23 PM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    Good lord. You have been predicting the impending "disaster" for how long now, 4 years, or is it 5??
    Been WRONG the whole time. Haven't you ny. (Statement not a question.)
    FYI It is all about dash flow. Higher payouts'
    While we are at it why not point out that almost all of the r.o.c. is distributed capital gains. Has to be, elsewise how do you explain how the nav has been INCREASING, for years???
    Hint: It is the trading prowess of management.
    With phk you are not buying assets held. You are buying future returns of assets sold.
    Give up. You have been wrong. Man up and admit it.
    You will lose less money then.
    4 Mar 2014, 03:05 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    Huck, always a pleasure to see you :)
    But you don't let the facts confuse you with your fantasy, as always.
    Care to tell me by how much did NAV appreciate over the past year or better yet 2 years?
    Wait, wait..maybe if we go back 3 whole years we can see NAV appreciation??? NO !!
    PHK has LOST some 14% of its NAV over the course of the past 3 years !
    Must be the acumen of the portfolio managers, has to, because YOU say so.
    Paying 18% on NAV MUST cause NAV deterioration in the current environment..and it did!
    While playing Russian Roullette and holding PHK at these exuberant premium you manage to eke out just under 9% a year for the past 3 years.
    Quite poor vs. many of its peers who trade at DISCOUNTS to their NAV, are less volatile and risky AND fully earn their distributions from portfolio income.
    Keep deluding yourself - you truly deserve the consequences.
    4 Mar 2014, 06:10 PM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    Go back 5 years. When the nav was a third of what it is today.
    As far as "consequences" go, I have already gotten those. Paid an average of $4 a unit. Been paid over $7 in distributions, plus about another $3 in interest for loaning those units. Your precious nav has tripled (YAWN), as has the unit price.
    Of course I am just an ignorant retail holder. not a sofisterkated prefessunal like you. I never went to 'arrrrvarrrrd I just went to the school of reality. Hence I was busy buying while most of you experts were busily selling.
    I am satisfied with my results though and I believe I shall continue holding an asset that PAYS me a monthly CASH injection at an annualized rate of close to 30% roi.
    Can you top that with zero effort?
    Didn't think so
    You keep shorting though. Those borrow fees are an enjoyable bonus.
    Don't look now but in a few days you will be on the hook for yet another p.i.l. for that never declining dividend.
    5 Mar 2014, 11:12 AM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    Keep deluding yourself.
    I am the first one to say PHK had a phenomenal run going out of the financial crisis..(it also CRASHEd like crazy during it, good for you for being smart and brave enough to pick it up on the cheap).
    but the picture is VERY different over the past 3 years.
    You have been LAGGING badly whether you admit it or not..and you will keep on LAGGING as long as this fund will trade at such huge premiums.
    5 Mar 2014, 03:08 PM Reply Like
  • kahunabear
    , contributor
    Comments (36) | Send Message
     
    Interesting to look back on this.
    23 Jun 2015, 12:40 AM Reply Like
  • GaoDawei
    , contributor
    Comments (175) | Send Message
     
    Don't own PHK but I have a touch of PTY just because it is fun to have some SWAPS that I could never have as an individual. I need a small percentage in the spicey side. So far, PTY has been extra awesome, especially at the end of the year. There is nothing unusual about the SWAPS listed in their annual report. I would not call them very risky.
    4 Mar 2014, 02:38 PM Reply Like
  • JMR66
    , contributor
    Comments (3) | Send Message
     
    Div .1218 every month since 6/18/2003.
    Price did drop in between 2008 and 2009,
    but since 2010 price has remained between 10 and 14.
    As a result div. consistently high. As long as management
    can maintain this history, better than leaving it in a money
    market.
    4 Mar 2014, 02:45 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    Do you compare PHK to money markets?
    Why not compare it to other funds that trade at discounts, do not subject you to crash potential (from the very high premium valuation), are less risky in their portfolio management (no derivative gambles) while paying just 2-3% lower dividend (which they fully earn from income).
    Earning 8-9% sure beats money markets too - without the unnecessary risks involved with owning PHK.
    4 Mar 2014, 06:14 PM Reply Like
  • GonzoOne
    , contributor
    Comments (242) | Send Message
     
    How baclly were you burned by PHK? It would only have happened if you sold it while it was down. But it does that, like all other investments. Up, down, up, down. If you buy on the downside, like I do, in a few years your total investment is covered by higher dividends. Still, since you obviously don't onw PHK but are on the war path concerning it, I am interested in how badly you got burned.
    20 Mar 2014, 07:42 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    Gonzo
    it seems you think you are the only talented person who can buy low, it might be a novel concept for you that one can SELL HIGH and BUY LOW and PHK has been giving plenty of opportunities to do just that.
    As I own other high yielding funds to offset occasional shorts on PHK, the return over the past few years has been quite positive.
    You would be well advised to start realizing that the fact you bought low and have accumulated many dividend payments to offset your purchase price does not mean that once PHK crashes to below NAV (where it rightfully belongs due to its much higher risks vs. peers and derivative usage) your capital will have shrunk dramatically.
    It is your money regardless of your cost basis and you go to sleep with it every night when you decide not to sell at such inflated premium to NAV, thinking otherwise is just a form of burying your head in the sand and cheating yourself.
    There is no such thing as "playing with the banks money" - once earned that money is yours to LOSE.
    Best of luck.
    20 Mar 2014, 08:03 PM Reply Like
  • User 2166431
    , contributor
    Comments (2) | Send Message
     
    Isn't the ROC attributable to a return of premium? Not a true ROC based on actual NAV valuation is it?
    4 Mar 2014, 03:12 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    They probably managed to classify it as some other item but who cares, look at where NAV was last year, 2 years ago and 3 years ago and where it is now.
    If they were earning their distribution rate it would have been stable..it is DOWN 14% in 3 years, DOWN 4.5% over the past year.
    And that's in very good years when almost anything you touch makes money for you.
    other funds have done much better, without all those premiums and risks.
    I venture to say PHK will lag peers as long as they keep that inflated distribution rate in place and the premium stays so high.
    it will go down to the 100%th percentile crashing lower if/when they cut that distribution rate (and they will, eventually, at the worst possible time, when NAV will have shrunk dramatically from portfolio derivative losses) and/or when Gross leaves the helm.
    This fund should trade at a DISCOUNT to NAV given its high risk profile.
    And it will.
    4 Mar 2014, 06:22 PM Reply Like
  • RW1960
    , contributor
    Comments (6) | Send Message
     
    Return of capital is not necessarily your own money being sent back to you. It is certainly something that needs further investigation when you see it as part of the distribution. Funds may use it to reduce taxes for the shareholder as ROC reduces your cost basis instead of being taxed as ordinary income. You end paying taxes as long term cap gains when you sell the fund. As huck2u pointed out the NAV of these funds has been increasing indicating that the ROC is constructive.

     

    Morningstar has a nice 3 part slide show that explains ROC and how to analyze if it is constructive or destructive.

     

    http://bit.ly/kChYgP
    http://bit.ly/1n8S6ir
    http://bit.ly/LhBzv5

     

    Other than the return of capital comment the M* article has other good info worth the read.
    4 Mar 2014, 05:43 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    RW1960 - PHK has LOST 14% of its NAv for the past 3 years.
    Just saying..
    4 Mar 2014, 06:23 PM Reply Like
  • RW1960
    , contributor
    Comments (6) | Send Message
     
    The decline in NAV is not due to ROC. These are interest rate sensitive funds that got hit in the second half of 2011 and May-June of 2013. Match their charts to many bond funds and you will see the correlation.

     

    I am not trying to defend these funds and agree that the premium price is not worth the added risks. I just get tired of the blanket dismissal of ROC as destructive by people who have not taken the time to determine if it is constructive or destructive.
    5 Mar 2014, 12:18 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    RW1960
    REALLY? what caused it to tank in the second half of 2011 if it is interest rate sensitive?
    Rates went DOWN from 3.05% to 1.87% during the second half of 2011 (10 year notes) - that should have HELPED PHK and not cause it to lose 22.5% (yes, that is 22.5% in 6 months) during that time frame.
    This is a PERFECT example of what could go WRONG in this fund, the level of risk it carries for shareholders.
    Bill Gross made a very wrong BET on interest rates during that time frame (well publicized) and look at the results.
    Other HY funds lost some value too, to the tune of 5-10% , not 22.5% !!
    I am not even talking about ROC because I am not privy to how Pimco chooses to classify their distributions.
    All I AM saying is that they CAN't and WILL NOT be able to earn 18% a year just to cover the inflated distribution rate consistently, without subjecting the fund to such disastrous events.
    5 Mar 2014, 03:18 PM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    You just hate it, don't you. You KNOW you are right (you have to be or else you would be wrong. Ego getting in your way, isn't it.) and still the distribution remains steady. Month after month, year after year. Eating you alive.
    Hint: You have been wrong. This whole time. PHK did not explode. It will not explode. Meanwhile the only way you can break even is the have the fund go bankrupt. Still the horrid words will not be stated by you. Such a pity.
    Just 3 little words would set you free.....
    "I was wrong."
    6 Mar 2014, 09:51 AM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    Guess that what happens when you lag for 3 years Huck..and you'll lag for the next 3 years too due to the huge premium.
    6 Mar 2014, 11:05 AM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    OK weedhopper, explain to me again how receiving over 15% CASH return on unit prices AND close to a 40% CASH return on investment is "lagging"......
    I'm all ears.
    If you need to resort to nav......
    Once again please tell me where in the world anyone can spend nav.
    As far as I am concerned nav is worth nothing. A mere bookmark. Nothing more.
    7 Mar 2014, 09:46 AM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    Lagging means that over the past 3 years your money would have given you a much better return, with less risk with other HY CEF's .
    If you choose to ignore this, this is your problem.
    More return with less risk is much better than less return with more risk but I guess you think otherwise..stay with PHK, you deserve it.
    7 Mar 2014, 11:00 AM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    How is having to pay all the capital gains tax, only to buy something that pays less cash, ever a wise move? Again it is ALL ABOUT CASH. Keep your worthless nav, or price appreciation. Neither can be spent.
    That is what you constantly refuse to see. No problem though, you deserve your blindness.
    8 Mar 2014, 10:00 AM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    Just keep holding it Huck, the capital gains tax problem will be gone by the time it loses its premium and trades where it should be trading, at a nice 8-10% DISCOUNT to .
    Often times, paying taxes is the smartest thing you can do in order to avoid a disaster waiting to happen, save a penny and lose a few dollars.
    8 Mar 2014, 03:51 PM Reply Like
  • GaoDawei
    , contributor
    Comments (175) | Send Message
     
    Y'all should go and download the annual report for PHK and you will see why NYer1 has a point. The swaps on their list our GIGANTIC. 500 million here, 500 million there. If any one of those had to be honored well, PHK would be forced to sell a ton of assets.

     

    On the other hand, this explains how PHK earns so much income on lower interest paying investments. Swaps work in a similar way to stock options but last a lot longer and you can earn the interest on 500 million but only pay, say, 67 million for the priviledge( to quote one I saw in there for Goldman Sachs.)

     

    If I misunderstood what I read in the annual report please correct me.
    4 Mar 2014, 08:54 PM Reply Like
  • GaoDawei
    , contributor
    Comments (175) | Send Message
     
    Need help because I think I'm not understanding what I read in the PHK annual report. Ignore last post.
    5 Mar 2014, 12:12 AM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    That is the first warning sign !
    They operate the fund almost like a black box hedge fund but it is a registered closed end fund mostly owned by small investors.
    The amount of leverage through derivatives there is off the charts and while in good times it has enabled them to float around with this over inflated distribution rate, in bad times (or bad bets like Gross miserable interest rate bet in 2011) the NAV would be hit REAL hard.
    Warren Buffet has always said that if something is too complicated for you to understand, you should avoid it as an investment - PHK is a perfect example.
    5 Mar 2014, 12:17 AM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    Give everyone full disclosure ny. You have been making the same case, and the SAME prediction, for the past 4 or 5 years. How many times have you been right??? Hint 0
    How many times have you been wrong?????? Hint, about 60
    Quite a record.
    5 Mar 2014, 11:22 AM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    Huck
    Full disclosure, i have been RIGHT in predicting PHK will be a LAGGARD for the past 3 years.
    Have you been wrong in claiming otherwise?
    5 Mar 2014, 03:19 PM Reply Like
  • matthew29732
    , contributor
    Comments (22) | Send Message
     
    Basically, I run about 45% leveraged (when averaged over 365 days) with my margin account with $180,000 my equity and $160,000 of Scottrade's money :-) in this fund and CLM. At my current allocation levels, my net (after margin interest) MONTHLY yield is 12.45%. Its amazing- while I still have my career (which in mortgage will end soon, I am sure with rates the way they are), I am using the distributions to payoff down the debit, margin balance, BUT when I stop working, i will have the distributions mailed to me each month. This is a sustainble revenue stream that I can almost think of as a pension! Call me crazy, but it works.
    19 Mar 2014, 01:07 PM Reply Like
  • Fibonacci Sequence
    , contributor
    Comments (605) | Send Message
     
    That is so beyond awesome.
    21 Mar 2014, 06:42 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    Matthew
    Be careful , very careful,because it is highly likely that by the time you stop working you will have very little capital (if any) left in CLM and the market price of PHK will be subject to a rude reversal to lower than its NAv (a mere correction of about 35-40% from here).
    In both funds, expect distributions to decline over the next few years.
    CLM pays you back a significant amount of your capital every year and since it trades at nice premiums to NAV, it means that every month you LOSE some of your capital while believing you get a too good to be true yield.
    You hold an asset priced at 125-130% of its true value while you get just 100% of the value as part of some of your monthly distributions.
    Last year, over 56% of your income generated a LOSS of principal to you as Return of Capital. For every dollar in income you got during 2013 you actually LOST about 12-13% (assuming an average Premium to NAV of 25%).
    2012 was slightly worse as your very destructive ROC amounted to some 58% of total distributions.
    You say : "This is a sustainble revenue stream that I can almost think of as a pension! Call me crazy, but it works."
    There is nothing sustainable about this revenue stream, if you didn't notice, CLM has been steadily LOSING NAV during this great bull market of the past 5 years (just to make a point with recent memory, actually it has been losing NAV at a VERY alarming rate for the past 13-14 years) - this is a self liquidating fund matthew and in a few years it will have nothing left in it to pay you from.
    As for PHK, do yourself a favor and read some of my comments regarding it to avail yourself of the risks involved there (to name but a few: HUGE premium to NAV, over inflated distribution rate that would need to be adjusted lower at some point as the fund can't earn it without resorting to very risky bets in derivative markets).
    You pour gasoline on a pyre of fire by using additional leverage through margin and holding those two disasters waiting to happen (actually CLM is a disaster that has been ongoing for quite some time but PHK's collapse would happen very swiftly once the Premium evaporates and /or distribution cut)Read the above very carefully and hopefully it will help your future.Best of luck
    21 Mar 2014, 08:00 PM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    Ny. There is such a thing as "playing with house money".
    You just object to that SIMPLE concept because (drum roll please) it would take away the only weapon you have in the attempt to manipulate people, for your own gain.
    We all know that, so give it up.
    At least GET A NEW SCRIPT..... We are sick of the repeated dribble you have repeated for the past 5 years.
    Been wrong the whole time too.
    21 Mar 2014, 12:03 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    Huck..keep it up and lose YOUR money..it is never the house's money once you earned it but this concept may be difficult for you to grasp..
    21 Mar 2014, 12:08 PM Reply Like
  • GaoDawei
    , contributor
    Comments (175) | Send Message
     
    There is a much safer way to experiment with some of the stuff in PHK. PFL is selling at a discount and has a current yield of 9.2%. With all the bad publicity going on about Bill Gross in the business press these last few months it might be wise to unload anything of his that is overpriced. What if Allianz decides to can him? That premium will disappear fast on PHK and PTY.
    21 Mar 2014, 01:06 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    Well said, there are quite a few Pimco managed funds that are trading at discounts and offer a MUCH better value with much LESS risk than PHK.
    PHK will drop well below NAV in an event like Gross leaving or giving up management happens or when (not if) they reduce their distribution rate .
    21 Mar 2014, 02:43 PM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    You have been predicting the massive distribution cut coming for phk for the past 5 years. During those 5 years it has "returned my own money" to the tune of 150% of my investment, tripled in price, increased the nav by even more. I'll accept those results. Even though price increase and nav are not real money. Keep shorting. Every once in a while ((when the price drops coupled by these silly hit pieces, and massive shorty selling) I tend to add a few more from some of that excess returned capit
    22 Mar 2014, 11:41 AM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    A fresh article by Morningstar which examines the huge premium on PHK.
    Barron's reports on it here:http://on.barrons.com/...

     

    The funny thing is people are still duped by the an extra 2% in distribution over PFN with a similar portfolio profile while paying a 53% premium instead of buying PFN at 2.5% DISCOUNT to NAV.
    IF/when PHK collapses back to the norm (which is a discount to NAV in CEF land) it would take current holders close to 30 years to recoup the losses with the extra 2% yield - and that assumes distributions won't be cut (which at 18% a year on NAV, assumes way to much).
    18 Apr 2014, 08:04 PM Reply Like
  • Fibonacci Sequence
    , contributor
    Comments (605) | Send Message
     
    PFN ain't low risk either.
    18 Apr 2014, 09:19 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    The portfolio may offer similar risks (though I still think it is actually lower risk than PHN) but the investment itself is MUCH lower risk than PHK given the 56% differential in premium/discount valuation between the 2 funds.
    2 other alternatives from Pimco (if you choose to stay within that fund family) are PDI and PCI..again, lower yields but much better valuation and risk profiles.
    18 Apr 2014, 11:55 PM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    What a surprize, having been totally WRONG, for 5 plus YEARS, you continue to maintain your same unchanged premise regarding phk. % PLUS YEARS of being wrong. Never being right. Quite a record.
    Envyable I suppose. Doubtful anyone has ever had such consistency in their record. More than 5 years without any deviation in their results.
    How unfortunate that YOUR record has been a total failure.
    You think anyone remains stupid enough to grant anything you think any credibility??????????
    Didn't think so.
    20 Apr 2014, 02:44 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    Huck
    It so happens that Morningstar has agreed with my opinion for quite some time and to wit their most recent article on PHK published just a few days ago labeling PHK " a BAD investment" due to the very high premium and overly high distribution rate.
    Since you belong to the (very misguided) faction that thinks once you have a nice profit you are "playing with house money" , why don't you keep holding this dog and see what happens when the premium evaporates and the distribution is cut ... I have been RIGHT in predicting PHK will be a LAGGARD for the past 3 years and indeed it has been behind by about 5% A YEAR vs. its NAV over the past 3 years and about 10% a year behind its NAV the past 5 years..its the PREMIUM but you keep deluding yourself.
    PHK has enjoyed phenomenal performance during a few years after the financial crisis but it is way too supercharged with risky derivatives and once the markets turn into corrective modes we shall see both NAV and price revert to the long term mean which is a discount to NAV in CEF land.
    Once again, if you believe Pimco can do no wrong, you can get other funds managed by them at a DISCOUNT to NAV and much less risk - but you won't go for that, I suspect, because the 11.5% yield is too precious for you and you'd rather sink with it and wait 30 years to recover (assuming they don't cut the distribution) then switch to something so very obviously superior.
    Keep driving by watching the rear view mirror..but don't be surprised when the train hits you in your windshield.
    20 Apr 2014, 06:45 PM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    Wow ny, I am so impressed. Morningstar is wrong too. You are not alone in your false thinking.
    Take that to the dean and try to revise your failing grade upwards. "But you have to give me credit for my answer, the other guy was wrong too."
    Your grade is STILL F,F, F..........
    21 Apr 2014, 05:51 AM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    While we are at it you still have to answer my basic enquiry. Where can you spend n.a.v.????????????????...
    I will wait for your answer.
    Meanwhile I will continue spending the REAL CASH.
    You keep your precious n.a.v.
    21 Apr 2014, 06:04 AM Reply Like
  • George Spritzer, CFA
    , contributor
    Comments (1216) | Send Message
     
    The article should have mentioned that PHK is "hard to borrow" and an additional return can be earned by institutional investors and some accredited investors by lending out the PHK shares to short sellers.

     

    This factor explains some of the mysterious premiums that develop in hard to short securities.

     

    For example, suppose a hedge fund can earn an additional 7% a year by lending out the PHK shares. There is still risk, but the extra 7% return helps to compensate for the risk that the premium would collapse. After four or five years, the excess return compensates for the premium and after that everything else earned is gravy.

     

    Of course, most retail investors are not aware of the details how the stock loan process works and do not receive any extra return by lending their PHK shares.

     

    For more info, google "fully paid securities lending"
    20 Apr 2014, 07:59 PM Reply Like
  • Fibonacci Sequence
    , contributor
    Comments (605) | Send Message
     
    I would suggest that any stock that is earning a fat stock loan premium, is probably one to simply avoid, rather than pick up a few nickels in front of a valuation steamroller.
    20 Apr 2014, 11:17 PM Reply Like
  • George Spritzer, CFA
    , contributor
    Comments (1216) | Send Message
     
    In general, I agree with you and I have never owned PHK. But some pretty sophisticated hedge funds use these strategies. I was baffled some years back when I discovered that the Renaissance Technologies LLC hedge fund (Jim Simons) owned large positions in the Cornerstone closed-end funds for several years when they were at big premiums. After doing more research, I finally realized they must have been earning generous stock loan fees.
    20 Apr 2014, 11:36 PM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    I've been loaning phk shares for several years through interactive brokers. The interest, as you said, is approximately an additional 7% (on the share price)
    Of course beings I bought in at the $4 level, the roi is through the roof.
    Funny thing is that the short selling fools have been saying for years how all I am getting is a return of my own capital. Never have explained how after the cash flow exceeds my investment I can still be merely recapturing my own money. Oh well, they have been predicting the dividend reduction for over 5 years too. At least the mantra remains consistent. Consistently WRONG.
    Hard to fathom how after been wrong for over half a decade they still refuse to admit the basic error in thought.
    "I'm not wrong, just 5 years early."
    Next year they will be 6 years early. Oh well, ignorance can be taught, stupid stays stupid.
    21 Apr 2014, 05:47 AM Reply Like
  • Fibonacci Sequence
    , contributor
    Comments (605) | Send Message
     
    When you build a house on a known earthquake fault, it can be a while before it collapses.
    21 Apr 2014, 11:01 AM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    Or it can never collapse. Besides earthquakes are over rated as a danger.
    21 Apr 2014, 12:43 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    One might also never get lung cancer if one keeps smoking 4 packs a day..does that mean it's a good idea to keep doing it even though you didn't get lung cancer (or any other cancer) yet after smoking 4 packs for many years?
    Or perhaps one should look at the potential risks in the future based on empirical long term evidence and avoid smoking all together instead of putting one's head in the sand and saying, since i didn't get it so far it will never be coming??
    But Huck, you feel like your house, on top of a volatile fault, was purchased with "house money" so you wouldn't care when it gets swallowed whole.
    21 Apr 2014, 01:14 PM Reply Like
  • GaoDawei
    , contributor
    Comments (175) | Send Message
     
    It's interesting that the majority of PHK holders are institutions. At least that's how it looked to me when I checked Morningstar. Why would a pension fund purchase PHK?
    22 Apr 2014, 11:38 AM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    Actually institutions own just about 5% of this fund.
    The pension fund manager who owns this fund at current valuations should be fired!
    22 Apr 2014, 11:53 AM Reply Like
  • talllight
    , contributor
    Comments (65) | Send Message
     
    Any information when the institutional investors buy into PHK?

     

    -If they bought into PHK while the premium was -10%, that will make a lot of senses.
    -If they bought while the premium was 70%, then i agree with NYer1.
    23 Apr 2014, 03:13 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    talllight
    It really doesn't matter when they bought into PHK.
    They currently own a hugely over valued position at over 50% premium to its NAV with extreme risks in the portfolio in the form of derivatives.
    One should only look at the dislocated yield on NAV to recognize this is a disaster waiting to happen.
    Unless you believe in alchemy, 18% yields only come with a degree of risk commensurate with highly leveraged derivative instruments (think: options, swaps, futures etc.)
    The vast majority of PHK's portfolio earns a measly 7% so even with leverage you get about 10%. The rest is a "hole" that PHK's management team is forced to plug by using extremely risky derivative strategies.
    With markets on cruise control higher over the past 5 years, it was easy for them to do so.
    Imagine what would happen when the risk coin shows its other side..NAv destruction, Premium erosion and a distribution cut are 3 things that naturally come to mind.
    23 Apr 2014, 04:15 PM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    Exactly what you have been predicting for over 5 years now. Thus far you have been wrong. My opinion, you will continue to be wrong.
    Of course that matters little, as you can not break even now if the fund becomes totally insolvent. That is the problem with maintaining a set opinion regardless of the facts.
    Just do the math. Your short has been displayed for 60 odd months now.
    P.I.L. payments exceed $7.50 If the share price declines by that 7 + dollars the result will be about the same as the price when you shorted. Now think about all those pesky borrow fees. Bottom line, following your lead over the past 5 years results in absolute disaster...... Following my lead, and you are fat and happy.
    Now you CAN NOT win. Give up. You lost.
    Just fess up, You have been totally wrong with the same prediction, EVERY TIME for more than 5 years. You have NEVER been right. Quite a record, you look like a horse to bet on as THIS TIME IS DIFFERENT, not.
    25 Apr 2014, 07:18 AM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    Seems like you enjoy driving and looking at the rear view mirror
    Enjoy the train coming into your windshield.If you are looking at my p&L statements you need a course in reading Huck..
    PHK has been and will be a wonderful short against long positions of other HY CEF's as long as its premium is at stratospheric levels and is bought and sold opportunistically from time to time.
    If you feel comfortable holding it, keep doing it but this fund WILL crash and the distribution WILL be reduced.
    The past has nothing to do with it and alchemy does not exists.
    Have you noticed you have been lagging over the last few years? expect a disaster for the next few years.
    26 Apr 2014, 03:06 AM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    You said the exact same thing 4 years ago, and three, and two, and one. I'll wager you will be saying it again next year, and the year after etc. You have been wrong since you started you silly bashing crud. You will remain WRONG.
    I shall keep taking the passive cash flow, as I use it to fund my RETIREMENT. It does represent about 4% of my total passive income after all......................
    You remain obsessed with this silly fund. I only pay attention so I can tweak your ignorant, arrogant ego.
    Don't worry though, we will believe your unproveable assertions regarding your trading prowess. After all, it must be true as you say so.
    Want to buy a beach front lot just east of Miami Beach, sell you one cheap..... After all if you are brain dead enough to think anyone would believe anything you assert you obviously are dumb enough to fall for any con.
    26 Apr 2014, 01:33 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    Always nice to read your super gracious remarks HUCK ;).
    Apart of relying on past performance you offer NOTHING of substance to reason why PHK should be bought or held at current valuations.
    The fact it pays a high income is nice but that high income comes at the expense of bearing undue risks..The fact it has payed constant distributions is nice as well but still does not warrant the undue risks inherent with them.
    You deem the risk just, I deem the risks outrageous.
    I shall see you BELOW NAV and with the distributions CUT to something like 9%-10% a year on NAV.
    Will be a pleasure to take this trip with you (as it has been so far)
    27 Apr 2014, 10:00 AM Reply Like
  • Fibonacci Sequence
    , contributor
    Comments (605) | Send Message
     
    It wouldn't be pleasant, but if PHK did a rights offering they could actually support the div. PIMCO did do a rights offering with PFN/PFL, subscribed to mostly by Bill Gross himself, so its not beyond the wildest dreams.

     

    Of course in that situation, the market price would get hit, but that precious div would be a little more secure.
    28 Apr 2014, 02:55 PM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    The "substance" I offer is that you have made the same statement dozens of times over the past 5 years. You have been wrong every time.
    I maintain this time will prove you wrong again.
    I will try to come back in 6 months to point out your failure.
    See you then.
    Meanwhile let anyone foolish enough to grant you credence watch the results of following your lead.
    End of discussion.
    1 May 2014, 06:12 AM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    That is no substance hick.
    That is pure buying/holding an asset only based on past performance with no regards to fundamentals and future potential for disaster.
    The fact PHK has paid steady distribution so far at a clip of 18% a year on NAV and trades at over 50% premium with immunity speaks volume for your "case".
    See you BELOW NAV with a lower distribution.
    1 May 2014, 07:16 AM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    Having been wrong for over 5 years you continue to hold your obsessive opinion ...... Hot tip: You have been wrong. Man up and admit your mistake. It will save you further losses.
    Swallow your pride, it won't kill you, it's not poison.
    I suspect your ego will continue to blind you though. Hence you will go on with your mistaken assumption for another year, or two, or three, shall we go for four.....................
    1 May 2014, 12:01 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    See you BELOW NAV and with a REDUCED distribution.
    1 May 2014, 12:54 PM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    Care to make a bet???????????????????...
    I realize that I just extracted another p.i.l., and will have the borrow interest credited to my account in a few days, but what the hell. I can be greedy.
    2 May 2014, 11:59 AM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    My bet will be paid by PHK, I don't trust your credit :)
    See you BELOW NAV with the distribution CUT !
    2 May 2014, 12:07 PM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    I do not rely on credit. I have cash.The truth is you lack the courage to accept my bet.
    Your bet will never pay off, simply because you made a mistake in assuming phk was equal to the average coupon clipping bond funds.
    Your silly nav is pertinent to those type of operations, where ownership is only holding a portion of the total basket of bonds. Such is not the case with phk, and your guiding parameter is useless in evaluating phk.
    Good to know that you will never see me, as I certainly have no desire to ever make your acquaintance.
    3 May 2014, 09:46 AM Reply Like
  • Fibonacci Sequence
    , contributor
    Comments (605) | Send Message
     
    PHK is NOT an inst holding. The top holder at 1+% is LPL which is just a brokerage firm for independent advisors. All the rest of the top 10 are the same sort of firms.
    23 Apr 2014, 03:21 PM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    A rights offering should have been done eons ago :)
    Just like AMZn should have issued more stock in a secondary at $300-400
    But PIMCo is between the rock and the hard place here, if they do a rights issue they crash the Premium and get very bad press..if they don't they will eventually need to cut the distribution and probably see NAv erosion (and price erosion as well due to it).
    What do they choose to do? kick the can down the road (I wonder where they learnt this one...)
    28 Apr 2014, 05:54 PM Reply Like
  • Huck2u
    , contributor
    Comments (54) | Send Message
     
    Just remember that tomorrow you need to pay the monthly p.i.l. again. Unchanged, just as it has been for the last 63 month. Ever since you first chattered about the coming dividend cut.....
    Just give some disclosure here. You have been wrong on this prediction for more than half a decade.
    Must be some kind of record ny..............
    30 Apr 2014, 09:01 AM Reply Like
  • NYer1
    , contributor
    Comments (2718) | Send Message
     
    OUCH!
    and POOF...
    23 Jun 2015, 01:16 AM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Hub
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs