Which Taxable Pimco Closed-End Bond Fund Is The Best?

| About: PIMCO Corporate&Income (PTY)

Summary

Pimco taxable closed-end funds are very popular with investors.

A multi-factor ranking model is presented to rank nine Pimco taxable funds.

Readers are free to adjust the weightings to come up with their own personal rankings.

Many closed-end fund investors closely follow the Pimco closed-end fund offerings. In the past, when Bill Gross still worked at Pimco, he invested a lot of his own money in these funds, which often caused the funds to trade at a premium over net asset value. But Dan Ivacsyn has done a good job in replacing Bill Gross (with a more low-key profile), and the funds have continued to attract investors.

I decided to take a look at these funds today and use a multi-factor ranking system to see which ones score the highest. There are many different factors one could use to rank these funds, but to keep it simple, I chose four factors that are commonly used by investors. For each factor, I list the data source used:

  1. Discount/Premium to NAV - Source: Cefconnect
  2. Annual Distribution Yield - Source: Cefconnect
  3. Three-Year NAV Performance - Source: Morningstar
  4. Baseline Expense Ratio - Source: Bloomberg

I selected nine Pimco closed-end funds that all invest in taxable fixed-income securities. It would also be interesting to look at Pimco's municipal bond closed-end funds, but I decided they should be run in a separate model.

The idea behind this model is that each of the nine Pimco funds is assigned a ranking from 1 to 9 for each factor. Then, an overall ranking score is computing by weighting the four factors. Initially, I weighted each of the factors equally - e.g., each factor gets a 25% weighting.

Here are the results of the equal-weighted model:

Ticker

Discount

Dist. Yield

3-year NAV Performance

Base Expense

Disc. Rank

Dist. Rank

Perf. Rank

Expense Rank

Overall

PTY

10.19%

10.09%

10.89%

0.85%

7

2

2

1

3

PCN

7.48%

8.62%

9.68%

1.02%

5

9

4

4

5.5

PCI

-3.58%

9.38%

7.32%

2.03%

1

5

7

8

5.25

PDI

7.94%

9.23%

9.93%

2.12%

6

7

3

9

6.25

PHK

29.97%

11.22%

12.21%

0.95%

9

1

1

2

3.25

PKO

2.96%

9.22%

7.21%

1.73%

4

8

8

7

6.75

PFL

0.18%

9.75%

7.96%

1.13%

2

3

6

6

4.25

PFN

0.70%

9.60%

8.40%

1.07%

3

4

5

5

4.25

RCS

22.05%

9.29%

5.92%

0.96%

8

6

9

3

6.5

Weights

0.25

0.25

0.25

0.25

Note that the overall ranking score is in the far right-hand side column. The lower the score, the higher the ranking. So according to this model, the "best" closed-end Pimco fund in the group is PTY. It score below average on discount/premium but ranks #1 or #2 on the other three factors.

PHK is the second-highest ranked fund, although I would never buy it at a 30% premium. It scores the lowest on discount/premium, but has the #1 ranking for distribution yield and performance, and ranks #2 for expense ratio.

Two of the most popular Pimco funds are PCI and PDI. They rank as the top two funds for "Popular Searches" on the CEFAnalyzer web site, and are often discussed on the Morningstar closed-end fund forum. Neither fund did especially well in these rankings.

PCI was the 5th best fund using the overall ranking score. It scored the #1 rank for discount/premium, but had relatively low rankings for performance and expense ratio. PDI wound up in 7th place partially because of its lowest ranking for expense ratio.

It is important to keep in mind that the ranking could look quite different if different factors or even different weighting are used. For example, leverage cost is an important closed-end fund factor. PCN has the lowest leverage cost of the nine funds because of its favorable auction rate preferred financing. So, if leverage cost replaced one of the other factors, PCN would have increased its overall ranking score.

For investors who do not care so much about distribution yield or past performance, I also ran the model using only two factors, discount/premium and expense ratio, each weighted 50%. These are the rankings for this simpler weighting:

Ticker

Discount

Dist. Yield

3-year NAV Performance

Base Expense

Disc. Rank

Dist. Rank

Perf. Rank

Expense Rank

Overall

PTY

10.19%

10.09%

10.89%

0.85%

7

2

2

1

4

PCN

7.48%

8.62%

9.68%

1.02%

5

9

4

4

4.5

PCI

-3.58%

9.38%

7.32%

2.03%

1

5

7

8

4.5

PDI

7.94%

9.23%

9.93%

2.12%

6

7

3

9

7.5

PHK

29.97%

11.22%

12.21%

0.95%

9

1

1

2

5.5

PKO

2.96%

9.22%

7.21%

1.73%

4

8

8

7

5.5

PFL

0.18%

9.75%

7.96%

1.13%

2

3

6

6

4

PFN

0.70%

9.60%

8.40%

1.07%

3

4

5

5

4

RCS

22.05%

9.29%

5.92%

0.96%

8

6

9

3

5.5

Weights

0.5

0

0

0.5

Using this simpler two-factor model, three Pimco funds were tied for the lead - PTY, PFL, and PFN - but PDI ranked at the bottom of the pack.

Readers of this article are free to experiment with their own weightings using the rankings above.

Personally, I think all of the Pimco funds are relatively pricey now compared to the values available in early 2016. But they can be a useful holding for investors who want to reduce their equity exposure without taking on too much interest rate risk. The Pimco funds tend to have fairly low duration because of various forms of hedging.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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