Every week, we’ll profile a high yield investment fund that typically offers an annualized distribution of 6-10% or more. With the S&P 500 yielding less than 2%, many investors find it difficult to achieve the portfolio income necessary to meet their needs and goals. This report is designed to help address those concerns.
Closed-end funds that trade at premiums to their NAV are fascinating case studies in investing logic. Investors must believe that there is something so good about a fund that they’re willing to pay above the asking price just to own shares. In a lot of cases, it’s just a perception issue. The “something so good” is usually an illusion and there often isn’t a lot that differentiates them from a fund trading at par or at a discount.
Such is the case with the PIMCO High Income Fund (PHK). Granted, it comes with a pretty good track record, but is that worth paying a 25% premium to NAV as investors did just before the COVID recession? Since investors usually target CEFs for their high yield, this is a good example of how PHK’s high yield can cause investors to put on rose-colored glasses and ignore the proper value of a fund.
Fund Background
PHK seeks high current income with capital appreciation as a secondary objective. The fund focuses on duration management, credit quality analysis, risk management techniques and broad diversification among issuers, industries and sectors as well as other risk management techniques designed to manage default risk. Additionally, the fund will normally maintain an average portfolio duration of between zero and eight years. The fund also utilizes leverage in order to enhance yield and total return potential.
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