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In a previous article I provided some analysis of Bill Gross's picks, historical (2009/2010) and current ones for 2011 provided in Barron's Roundtable article. One of Gross's picks for 2011 was Pimco Corporate Income Fund (PTY), a closed end fund that uses leverage to generate investment income and maintain high dividend yields for investors. Once Gross's selection became public on Monday, PTY jumped, and now the premium to NAV is over 10% - a stiff entry price for investors to chase. So I thought I would take a look at the other PIMCO closed end funds also managed by Bill Gross and team, and see if there are some alternatives to PTY.

Pimco Closed End Funds - Alternatives to PTY


Summary Comparison of PIMCO Closed End Funds

(Click to enlarge)


1. Premium/Discount - PTY trades with a premium of over 10% to it's net asset value. This means that the price to buy this closed end fund is greater than the value of the securities held by the fund by that amount. Paying more than an asset's market value is usually not a great investment strategy. The only solace with PTY is that the premium has persisted for most of the past 3 years. It is interesting to see it compared to Pimco Floating Rate Strategy Fund (PFN), where there have been longer periods of discounts.

PTY 3 Year Chart of Premium/Discount to NAV

PFN 3 Year Chart of Premium/Discount to NAV



3. Distribution on NAV - This is the yield the actual investments are providing. Again PTY is top and PFN is the bottom. Again duration might be a key reason for PFN's lower yield. The higher yield of PTN might be a combination of higher duration and higher credit risk for PTY vs PFN. The other three funds fall in between PTY and PFN.


Performance of the 5 PIMCO Closed End Funds


1 Year Return and Comparison to Benchmark

Picking an Alternative to PTY

Looking at the five funds, PIMCO Corporate Income (PCN) seems most comparable to PTY, Gross's recommended investment for 2011. Yields, Duration, Leverage, all look to be in the same ballpark, and PCN has a much lower premium to NAV. It might be a worthy alternative if you agree with Gross's investment outlook. I would avoid Pimco Income Opportunity Fund C (PKO) because of higher leverage and oddly high management fees - almost 1% higher than the other 4 funds. PIMCO Income Strategy Fund (PFL) and PFN might be alternatives with still generous yields, but expect lower yields than PTY if the duration is lower and the yield curve shape is maintained. PFL and PFN could perform better in a rising interest rate environment and also offer a lower premium to NAV for entry.


Source: Bill Gross's 2011 Fund Picks - Alternatives to Consider for Income Investors