Looking at PHK at etfconnect, I see that as of yesterday it was selling at a 60% premium to its NAV. This is crazy. Since its inception, PHK's premium to NAV rarely exceeded 10%.
I buy CEFs at a discount to NAV, preferably a large discount. The difference between PIMCO and non-PIMCO high yield CEFs is astronomical and not justified IMO.
One thing that fuels PIMCO's high dividends is high leverage. PIMCO usually pushes leverage to the hilt, perhaps because they have access to cheaper borrowings because of their size. But leverage is a double edged sword, especially in these perilous times. In general, the higher the leverage, the more the discount to NAV, because of the extra risk. In the last couple of months this concept also has been turned on its head, at least as far as PIMCO high yield funds are concerned.
One of the things that may have attracted people to PIMCO's high yield funds is that during the last couple of months they have considerably increased the proportion of investment grade bonds in their portfolios, as can be seen at the PIMCO web site. I suspect a lot of those bonds are bank bonds, so I wouldn't trust those ratings very much. Their low quality bonds are heavily auto bonds. Looks like PIMCO is betting heavily the government will be kind to bank and auto bondholders. It may turn out to be a good bet, but I still can't stomach those premiums to NAV. |
