Gruber

PIMCO High Income Fund Cannot Support Its Share Price

Why doesn't Pimco do what Joe suggests.

Put out some type of supplemental analysis that substantiates its ability to sustain its annualized dividend based on NII.

This way we can shut Joe up.

CEF Investors Can't Expect Big Year-End Payouts

Thank you for the detailed answer.

In your opinion, would this also be true for a special distribution with a different record date?

Thanks


On Sep 07 02:15 PM Gwailo wrote:

> This is a good question, and it merits a better answer than "That's
> the way it is." Here's my understanding of the analysis by Stephen
> Hamilton, Esq., in his recent article, which is available online
> at www.drinkerbiddle.com/...
>
>
> Assume a CEF has a capital loss of $10 in year x1 and a capital gain
> of $10 in year x2, with all other items break-even. It nothing is
> paid out in year x2, the loss carryover simply cancels out the gain.
> But what happens if the CEF pays a year 2 distribution of $10 to
> its shareholders.
>
> The $10 is a "dividend", as defined byTax Code Sec. 316(a), since
> it's covered by current ($10) *or* accumulated ($10-$10 = $0)
> "Earnings and Profits". ("E&P" is a hybrid of tax and financial
> accounting concepts -- Code Sec. 312 has the gory details.)
>
> CEFs can't make "return of capital" designations. "RoC" is a residual
> -- it's what left (if anything) after subtracting out the
> "dividends" from the total amount distributed. Here $10 - $10 = $0,
> so no RoC.
>
> Tax Code Sec. 852(b)(3) says CEF's can designate part or all of a
> dividend payment as a (long-term) "capital gain dividend", which
> gets favorable treatment (max 15% rate) on an individual investor's
> tax return. *However*, the amount that can be so designated is limited
> to the CEF's own "net capital gain" for the year, *after* subtracting
> any capital loss carryforwards. In our case, $10 - $10 = $0, so the
> CEF can't designate any of the $10 payout as a CGD.
>
> Result: The $10 distributed in year x2 is a taxable dividend. It
> doesn't qualify for any special treatment, so it's "ordinary income",
> taxable for individual investors at marginal rates up to 35%. Snap!
> Ouch! The key to understanding the result is that the definition
> of "dividend" -- current *or* accumulated E&P -- doesn't count
> the year x1 loss, but that loss does get included when figuring the
> CEF's "net capital gains" for year x2.
>
> 'Gwailo

CEF Investors Can't Expect Big Year-End Payouts

While I’m not an accountant and given that tax laws are not logical, since dollars are fungible, why wouldn’t a CEF that realized a capital gain in 2010 write it off against its 2009 capital losses and distribute the amount of capital gains anyway and designate it as a return of capital distribution?

It would seem to me that you’d get the best of both worlds? Remember we’re talking about cash flow and not earnings and profits.

PIMCO High Income Fund: Substantially Overvalued?

Investors with Maddoff thought he was a great investors too.

PIMCO High Income Fund: Substantially Overvalued?

While I may disagree with some of your points I think your analysis is as good as any professional opinion. I'd encourage you to keep at it.


On Jul 09 12:13 PM Jade Bond wrote:

> Joe said, "I’d appreciate any additional insight into why this stock
> is trading where it is."
>
> I'll take a stab at this. I'm not a professional analyst, but here's
> my confusion with Seeking Alpha's analysts and why I own PHK.
>
> PHK is a leveraged high-yield fund. Why must "high-yield" come from
> securities income generated by the fund's portfolio instead of the
> fund's trading activity?
>
> The securities in the fund might not be "earning" +20%, but the money
> I get out from the trading activity is earning me +20%. Why is that
> bad for me?
>
> Why are analysts analyzing it like a value play? (seekingalpha.com/artic...)
> I get the math about subtracting distributions from income, but the
> part about not earning and paying out the income from trading --
> well why shouldn't I expect that? When I buy/sell securities and
> generate income, I call that "earning". It's not the value-investing
> form of the word, but it's earnings from my activities, which is
> security trading. Isn't this what a hedge fund does? (See my interpretation
> below).
>
> Why is this analyst using only the historical premium as a gauge
> instead of the historical yield? seekingalpha.com/artic...
>
> "This is well in excess of its historical premium of 4%."
> and
> "Compare this with the metrics of three ETFs that invest in junk
> bonds"
>
> Aren't those other comparative securities getting their yield from
> the securities in the portfolio instead of their trading activities?
>
>
> In this piece, much more detailed and in depth, I still can't tell
> why the peer comparisons are valid. seekingalpha.com/artic....
> Do the 3 ARPS leveraged peers use the same strategies and portfolio
> mix as PHK? Are they yielding less because they aren't as successful
> at milking the system? Point 2 is moot if PHK generates it's yield
> from trading instead of investment income. Point 3 is moot if they
> adapt to the changing market by moving to more traditional securities.
> Point 4 is a valid concern. But on the flip side, if the worst is
> indeed behind us, NAV of PHK will indeed rise. Point 5 is true and
> valid. But my interpretation is they've changed because the world
> in which they operate has changed. Point 6: I quite buying, too.
> How much do the insiders already own, and why should they continuously
> keep buying more?
>
> My interpretation is that PHK has become a hedge-fund-type of investment
> for the retail investor to take advantage of the distorted market
> in MBS and CDO securities. For sure, that's a risky game to be in.
> But doesn't that argue for analyzing PHK as a hedge fund rather than
> a value or typical high-yield fund? Seems to me the correct analysis
> is to look at trading strategy, the market in which it trades, and
> the hedging/risk management of the strategy, not securities analysis
> ratios.
>
> What I gather from these three analysis is they expect PHK will revert
> to it's historical 12% yield by falling in value to match other high-yield
> funds producing 12% returns. My reason for owning it is the opposite
> -- I presume the yield will return to 12% as the management (currently
> Bill Gross himself) cycles the portfolio out of the old MBS/CDO instruments
> through trading activities into newer historical norm high-yield
> instruments, or as the holdings themselves rise in value (as the
> portfolio securities' internal cash-flows resume) from the shifting
> economic landscape.
>
> Granted, some who follow Elliot Wave Theory don't think we're done
> with the economic collapse, and others think these old toxic-waste
> debt instruments are going to live up to expectations of 75% defaults
> (or worse). But it's my belief that a) the worst is over in the global
> economy, and b) Bill Gross and company know how to pick the right
> MBS/CDOs.
>
> I sure hope my questions aren't treated as rhetorical. I still haven't
> read the classic book "Security Analysis", so I really would hope
> someone can address my misunderstanding on the particular questions.

ETJ: Noticing a Bogey

The question I have is the characterization of income with respect to buy/write funds?

I’m not sure whether the option premium is amortized over the life of the option or recognized when the option expires. If the option premium is recognized at its expiration, for non-GAAP accrual purposes, the fund could payout that accrual in anticipation of the option expiration. That may cause the dividend to be initially characterized as a return of capital until the option expires. Once the option expires, such dividends may be re-characterized as investment income.

I’m not an accountant, but maybe there’s someone out there who can speak to this issue.

Gruber

Joe Eqcome Mid ’09 CEF Performance Report Card

joe, thanks for the review. Look forward to your next update.

Gold, Oil and Fixed Income? They're All in This CEF (GGN)

I've heard the "bull story" in a different context. Thank you for the sanitized version, but the original version's a hoot!

Morningstar CEF Ratings: Worse Than Random

If, as you contend, Morningstar's ratings is really comparable to an index, then it should be called that.
I agree with Joe that the Morningstar's ratings for CEFs should be called something else.


On Jun 09 11:52 PM Wildhawk wrote:

> You'd think that the author would have gone to the trouble of actually
> attempting to understand how Morningstar rates closed-end funds before
> writing an entire article about how bad the rating system has been.
> The Morningstar closed-end fund rating system is NOT akin to the
> way they rate stocks (based on their long-term future investment
> merit), but instead uses the same methodology as open-end mutual
> funds (where the rating system is based purely on a backward- looking
> measurement intended to compare similar funds based on their past
> performance). All the Morningstar ratings system for CEFs is doing
> is telling you what funds have performed well in the past relative
> to funds with similar portfolios. It is not intended to be predicted,
> like their stock ratings are.
>
> Since, to my knowledge, all closed-end funds are actively managed,
> rather than indexed, all the above data shows is that managers of
> closed-end funds were consistently inconsistent in their ability
> to outperform their peers- the top managers in one time period became
> the worst managers in a later time period, not unlike what other
> studies have shown are similar results from open-end actively managed
> funds.
>
> Anyone who's read a prospectus understands that past performance
> is not indicative of future returns. If fund investors are using
> Morningstar's open-end and closed-end fund ratings systems as forward-looking,
> predictive measures, they're barking up the wrong tree.

Bright Spot for Leverage - Increasing Yield, Narrowing Discounts In Levered Municipal Bond Funds

While current interest rates on ARPs are low due to prospetus covenants relating to a low default rate on unsuccessful auctions, isn't this a temporary phenomenon? It seems CEFs are anxious to pay-off the ARPs and such refinancings is likely to boost leverage expense above the current low default interest rate. Wouldn't this likely result in a deminished future distribution?

Gruber

Four Commercial Real Estate ETFs to Consider as the Next Shoe Drops

You may be a little late to the real estate "short" party.
This would have been good advice 6 months ago but its old news already discounted into the stocks. REITs have been successful at raising capital and this market segment is not headed for wholesale bankruptcy. GGP bankruptcy may be a lagging indicator. Additionally, CMBS will likely be added to the TALF program easing some pressure.
While there is more pain to come for commerical real estate and there is a "short" trading opportunity now that the an ETF like VNQ is up almost 30% in the last three weeks, pay attention to covering your short position. This is not a "no-brainer."

CEFs Continue to Advance; Real Estate Funds Surge

Sounds like you’re the idiot


On Apr 05 03:38 PM nana1 wrote:

> This is an idiotic statement " ability of REITS to raise equity capital
> to pay down the debt".
> Is this some invention to rise capital ?
> What kind of idiots are these shorts or panic-idiots that do not
> understand capital structure.
> I will give you basic lecture:
> Public corporation have several ways to rise capital:
> 1. issue debt
> 2.issue additional stocks
> 3. Conbination of 2 at the same time.
> Above capital could be used for paying old debt or general expenses
> or expantion or acquisitions.
> people who do not understand that should never invest in any stock.
> Madoff is waiting for you. I recommend him as number 1 finacial advisor.
>
> I made already more than 100% on these real estate ETF'S taking advantage
> of idiots.
> Do not bet on banks that they will go to hell. Banks can also issue
> additional stocks and you will go to hell permanently as a short-brain.

Low Share Price CEFs Have Significant Advantage in a Market Recovery

Whiperonthewind

There are several sources of CEFs info that might be of use to you. ETFconnect.com, CEFA, and MorningStar.

Gruber


On Mar 13 06:23 PM whisperonthewind wrote:

> I'd like to see a listing of all the CEFs in one spot so I could
> do my own due diligence. It would also be nice to know if they had
> a monthly or quarterly dividend and what the yield is for the day
> the list was created.

Low Share Price CEFs Have Significant Advantage in a Market Recovery

The article seems to focus on the price change from a cyclical low as a trading opportunity for 9 months or less. While the dividend yields appear to be suspect, as Xyrus points out, the yields appear to be an incidental part of the trade.

The problem with this strategy is rightly picking the bottom of the market. If you could do that, there are probably lots of other ways of making money with that knowledge.

Gruber

PIMCO High Income Fund: Look to Swap Out

I don't get the math. If I had a fund that has $1 billion in assets at a yield of 14% and leveraged it 33% at cost of 6%, my equity yield would be 16.6% excluding fees. If investors were to bid up the stock to a 50% premium of the original equity value (NAV), my equity yield would drop to 9.3%--not go up.

Isn't a significant premium anticipatory; thereby implying significantly higher positive future events? While the fund could certainly buy higher yielding assets than the market rate because of market expertise, this type of premium is hard to justify.

What am I missing? I would appreciate some insight.