PIMCO Closed-End Fund Anomaly

There are about 600 closed-end funds in the US market, and a majority of them trade at a discount to net asset value. But a glaring exception are the CEFs run by Pimco. I found 18 Pimco closed-end funds on cefconnect.com, and all of them are currently trading at a premium over NAV. Here is a list of the Pimco funds sorted by premium over NAV:

PIMCO Close-End Funds   March 19, 2010  
  Current Premium 52 wk avg prem 52wk low prem Type
PGP 48.10% 52.80% 17.78% Multi-Sector
PHK 38.52% 47.87% 28.72% Hi Yld
RCS 20.13% 15.11% 5.92% Glbl Inc
PMF 11.91% 17.20% 7.08% Muni-Natl
PFL 11.87% 8.97% -8.70% Multi-Sector
PCK 9.53% 15.79% 5.32% Muni- CA
PMX 8.95% 11.68% 7.08% Muni-Natl
PTY 8.87% 8.36% -0.80% Inv Grade
PCN 6.44% 10.51% 1.09% Inv Grade
PML 5.64% 6.37% -1.36% Muni-Natl
PFN 4.90% 4.27% -9.09% Multi-Sector
PNI 4.88% 7.60% -0.23% Muni-NY
PCQ 3.98% 5.78% -3.65% Muni- CA
PCM 3.94% 4.11% -7.20% Mtg
PZC 2.77% 5.89% -2.41% Muni- CA
PYN 1.90% 3.99% -0.36% Muni-NY
PNF 1.90% 1.99% -6.48% Muni-NY
PKO 1.15% 1.92% -2.33% Multi-Sector

One can only speculate as to why the Pimco funds are trading at a premium. I often listen to CNBC and Bloomberg radio. It is amazing how much free air time is given to Bill Gross and Mohamed El-Erian.  They usually talk about the overall economy and bond market sectors, but in a subtle way get to “talk their book” which may give them a slight edge over other funds. Some investors may be buying Pimco funds to exploit this media “advantage”.

The Pimco funds are now owned by Allianz. But not all of the Allianz closed-end funds sell at a premium. For example, NFJ and NIE sell at discounts over 10%. I’d like to recommend an idea to Allianz management. They should consider renaming NFJ and NIE to add PIMCO to their name. Given the current Pimco CEF mania, this may cause the discounts to turn into premiums!


6 responses to “PIMCO Closed-End Fund Anomaly

  1. I had invested in CDs a few years ago when they where paying 6% now they are coming due and I look at the current yields on bonds and wonder who in the world would pay up for fixed income like this. You have to go out at least 8 years to get a decent yield and I think with all this governement spending inflation is going through the roof and long term bond holders are going to lose their shirt in capital losss. What are you top fixed income investments that have less than a 8 year duration. And I agree I would not be buying an closed end fund a a premium.

    • FFRHX is a floating rate fund offered by Fidelity that should do OK if interest rates and inflation increase.
      You could also look at TIPS, but the real rates are very low now.

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  5. Michael Gillis

    Historically these funds have a close relationship between the market price and NAV, but since the market crash and recovery the distributions on these funds have remained stable despite the fact that the NAV is lower than it once was. In other words, back when the market price and NAV of PHK were hovering around the 14-16 range, that stock was paying 1.4625 annual dividend, and even now, with a NAV around 9.40, the distribution is still the same. It’s not an anomaly, investors are just chasing the higher than normal yield. If you bought in around 9, you’d be yielding 16%, along with a decent amount of capital appreciation. I’m pretty sure all the other funds trading at a premium follow that same pattern. Not a bad investment if you get in and out at the right time, but of course, that’s true of anything.

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