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PIMCO CEF February Update

Apr. 09, 2021 3:39 PM ETPGP, PHK, RCS8 Comments


  • We discuss the leverage and distribution coverage figures of PIMCO CEFs for February.
  • We also highlight the interest-rate positioning in the taxable suite, which, in large part, is responsible for the performance of the taxable funds in this rising rate environment.
  • We continue to favor PHK in our allocation due to its modest leverage, low fees and yield curve steepener profile which have allowed the fund to continue outperforming.
  • I do much more than just articles at Systematic Income: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

This article was originally released to Systematic Income subscribers on 23-Mar.

In this article, we provide a February update on the PIMCO fixed-income CEF suite, focusing on coverage and leverage changes for the month. We also highlight the interest-rate dynamics of the taxable suite which, in large part, determines how the funds have responded to the shifting interest rate environment. We continue to favor the PIMCO High Income Fund (PHK) in our allocation due to its modest leverage, low fees and yield curve steepener profile which have allowed the fund to perform very well within the suite.

Leverage Update

PIMCO taxable CEFs added borrowings, in aggregate, over the month of February.

Source: Systematic Income

However, leverage ticked down very slightly as NAV gains outpaced borrowings.

Source: Systematic Income

The leverage picture that is starting to emerge here is that of PIMCO funds raising leverage levels from May into September when underlying credit valuations were attractive, then tapering leverage through December as assets became close to fully valued. Since November the average leverage level has been little changed reflecting range-bound underlying valuations. Unless we see a significant move in assets one way or another we don't expect leverage levels to move sharply from their current levels.

Individual fund leverage changes were mixed with the two idiosyncratic funds, PIMCO Strategic Income Fund (RCS) and PIMCO Global StocksPLUS & Income Fund (PGP), cutting leverage while a number of fixed-income multi-sector funds added leverage.

Source: Systematic Income

There have been no changes in borrowings for tax-exempt funds since their initial deleveraging in the first half of the year. The main reason for this is that the muni fund NAVs have been much more under pressure due to their higher-quality allocation and a longer duration at more than 2x that of the taxable funds. This inability to

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This article was written by

ADS Analytics profile picture

ADS Analytics is a team of analysts with experience in research and trading departments at several industry-leading global investment banks. They focus on generating income ideas from a range of security types including: CEFs, ETFs and mutual funds, BDCs as well as individual preferred stocks and baby bonds.

ADS Analytics runs the investing group Learn more.

Analyst’s 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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Comments (8)

ksal55 profile picture
Announced today, Pimco is merging PKO and PCI into PDI...
Time to buckle up...
Dick Cod profile picture
Hi ADS....I concur that signals abound for possible future rate cuts, but it strikes me that it is then incumbent upon us to "explain away" one piece of confusing (to me at least!) evidence AGAINST that case. And I'm having no luck by myself....
Looking at the financial highlights section of the semi- for the 1/31 funds, I note that in the half-year PTY had NII = 66c, 154c in realized and unrealized gains, but then reports 78c in regular distributions ALL FROM NII. Notably, PCN, PFL and PFN follow the same pattern. (Only PHK reported NII equal to its distribution.)
How are we supposed to explain the reported coverage of distributions by clearly DEFICIENT NII with no mention of a contribution from realized gains? And (additionally), why does this appear out of synch with monthly reports of UNII and earnings? Can you shedsome light on this?
Regards, Dick
likeparty profile picture
@ADS Analytics thank you for the company based summary. Makes me glad to be focused on Flaherty & Crumrine, Cohen & Steers, Blackrock, and Invesco funds. Each in their respective fields of expertise.
Excellent data and commentary, thanks.
James Bf profile picture
I continue to build on the newcomer PDO.
ADS Analytics profile picture
@James Bf That's a sensible choice in the sector given the high valuation of the other PIMCO funds and that PDO is less likely to cut in the suite. Covered it more here:
John Batman profile picture
Great analysis as always. Even though I like phk, I recently sold out my position and took the gains. 18 percent premium is a bridge too far.
chuckmyd profile picture
Many thanks @ADS Analytics !
Your monthly review is always enlightening and appreciated.
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