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Pimco Income Fund: A 5% Yield Still Looks Good

Apr. 02, 2018 9:53 AM ETPIMCO Income Fund A (PONAX), PONDX91 Comments


  • Investors in class D shares of Pimco's Income Fund (PONDX) recently saw their shares convert to class A shares (PONAX).
  • The funds are very similar, and PONAX's current yield remains attractive as low interest rates linger.
  • The fund's net asset value (NAV) is essentially flat from a year ago, indicating the fund has held up well while other bond funds have dropped.
  • Domestic inflation figures and global economic growth are both slowing, which should help bonds short-term.

Main Thesis

The purpose of this article is to explain why I believe Pimco's Income Fund Class A (MUTF:PONAX) is an attractive investment option at its current market price. The fund's distribution, based on its NAV, is yielding over 5% annually, which remains attractive as investor expectations on interest rates are pared back. The fund has held up reasonably well, considering that bonds have been under pressure over the past few months. Furthermore, economic growth on a global level is slowing down, which is raising doubts about the return of inflation, especially in the short-term. This bodes well for broad based bond funds, including PONAX.


First, a little about PONAX. The fund seeks to maximize current income, with a secondary objective of long-term capital appreciation. The fund invests in a range of fixed income securities, predominately with a duration between 0-8 years. Its primary benchmark is the Bloomberg Barclays U.S. Aggregate Index, which covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. Currently, the fund is trading $12.21/share and pays a monthly distribution of $.0514/share, representing an annual yield of 5.05%. I was an investor in PONDX, which recently saw its shares converted to PONAX, as part of a consolidation effort by Pimco management. As someone who has covered PONDX in the past, and was directly impacted by this conversion, I wanted to assess PONAX's current outlook and determine if the fund makes sense to hold given our current market climate. I believe it does, and I will explain why in detail below.

US Inflation Figures and Fed Guidance

Inflation data always impacts bond funds, but it is especially important in today's market. Inflation data is driving Fed guidance on interest rate increases, and that, in turn, is causing some

This article was written by

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CEF/ETF income and arbitrage strategies, 8%+ portfolio yields

I've been in the Financial Services sector since 2008, which unsurprisingly gives me an invaluable insight in how markets can turn. I was a D1 athlete in college (men's tennis), where I studied Finance. I also have my MBA in Finance.

My readers/followers can trust that I won't pump any investment nor discuss a topic I don't genuinely follow and research. In that spirit, I list my portfolio here for transparency

Broad market: VOO; QQQ; DIA, RSP



Dividends: DGRO; SDY, SCHD

Municipals/Debt Funds: NEA, PML, PDO, BBN


Cash position: 30%

Analyst’s Disclosure: I am/we are long PONAX. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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