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An Update To The Greatest Bond Fund Of All Time

Apr. 05, 2018 8:54 AM ETPIMCO Dynamic Income Fund (PDI)PCM, PGP, RCS70 Comments


  • The fund has been able to generate double-digit annual total returns since inception by investing in non-agency MBS.
  • Interest rates have been neutralized through their pay-fixed swaps allowing the fund to return 2.65% YTD.
  • As positive housing and employment trends continue for the rest of the year, the fund should continue to perform well.

Members of Yield Hunting received this report early and potentially with more actionable advice.

We have written in the past (HERE) how we believe PIMCO Dynamic Income Fund (NYSE:PDI) is the greatest bond portfolio of all time. We have detailed our thesis surrounding that several times - that the fund is essentially a distressed debt hedge fund. When the fund launched back in late 2012, they were able to allocate a large percentage of proceeds from the IPO to non-agency MBS.

Those are the largely subprime mortgage from prior to the financial crisis. PDI managers bought those formerly AAA rated - not all were AAA but almost all were investment grade rated - for pennies on the dollar. These were busted MBSs that no one wanted and the institutional investors were trying very hard to sell. Many pension funds, endowments, and insurance companies have strict ratings requirements that forced them to sell the securities once they were no longer investment grade.

An MBS is just a pool of mortgages that are then sliced up into tranches. As a borrower fails to pay, their house is foreclosed upon and the mortgage pulled from the pool permanently impairing its value. This was demonstrated in the movie The Big Short by Ryan Gosling's character when he kept pulling the jenga blocks out of the stack.

(Source: The Big Short)

The fund now has a five-year track record, which we posted below. The fund started trading May 25, 2012. It is hard to find a better quality asset that has performed so well.

(Source: CEFConnect)

In fact, since inception, the fund has outperformed the S&P 500 total return, and by a handsome margin.

ChartPDI Total Return Price data by YCharts

When the fund initiated, they had ~46 million shares outstanding. Roughly one year ago, they

This article was written by

Alpha Gen Capital profile picture
Targeting 8+% Income Stream using CEFs, ETFs, Munis, Preferreds and REITs
Yield Hunting: Alternative Income Opportunities is a premium service dedicated to income investors who are searching for yield without the high risk of the equity market. We are one of the top experts in closed-end funds ("CEFs") in the country having spoken at many national conferences on how to incorporate CEFs into client portfolios. We manage four portfolios that investors can follow:

- YH Core Income Portfolio: yield ~8%
- YH Flexible Income Portfolio: yield 7.53%
- YH Taxable Core Portfolio: yield 5.24% (some tax free)
- YH Financial Advisor Model

Plus: Muni CEF Shopping List.

Our team includes:

1) Alpha Gen Capital - I am a former financial advisor and investor. Not someone from another career doing this on the side. My analysis is meant to provide safe and actionable insight without the fluff or risky ideas of most other letters. My goal is to provide a relatively safer income stream with CEFs and mutual funds. We also help investors learn about investing and how to properly construct a portfolio.

2) George Spritzer - Another career financial guru who runs a registered investment advisor with a specialization in closed-end funds for individuals. George uses the following investment strategies:1) Opportunistic Closed-end fund investing: Buy CEFs at larger than normal discounts to NAV and sell them when the discounts narrow. 2) Exploit special situations: tender offers, fund terminations, fund activism, rights offerings etc.

3) Landlord Investor- spent his career as a management consultant for public sector clients at a multinational consulting firm in the DC area. He has transitioned to a new career as a full time landlord. His investment portfolio is comprised of two parts -- broad-based index funds and income plays such as preferred stock, CEFs, and REITs. He also owns individual/baby bonds which he buys on margin to boost total return. Landlord is our 'individual preferred stock' expert analyst.


Analyst’s Disclosure: I am/we are long PDI, PCI, PGP. 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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