Several Reasons Why You Shouldn’t Be Entranced By This 14% Yield
Look To The Left Of The Equal Sign
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.
In the world of fixed income investments, there are a lot of risk/reward profiles to consider. In high yields, returns have been solid and outperformance has been steady, but spreads are incredibly narrow suggesting limited upside. Among Treasuries, yields have been very Fed-dependent and tend to respond more to inflation than risk-on/risk-off conditions. Convertibles have done relatively well considering their equity-like characteristics. The rest has been pretty hit and miss. Selecting an individual income fund and trying to get it right has been more challenging than it’s been in a while.
That’s why funds that can be flexible and change with conditions can be so valuable. The PIMCO Dynamic Income Fund (PDI) has the ability to remain nearly unconstrained, having the ability to invest in all sorts of fixed income assets from all around the world. This can be a big advantage for investors who want to take advantage of high yields, yet remain nimble with their investments and be able to change when conditions change.
Fund Background
PDI normally invests worldwide in a portfolio of debt obligations and other income-producing securities of any type and credit quality, with varying maturities and related derivative instruments. The fund’s investment universe includes mortgage-backed securities, investment-grade and high yield corporates, developed and emerging markets corporate and sovereign bonds, other income-producing securities and related derivative instruments. It typically invests at least 25% of total assets in privately issued or “non-agency” mortgage-related securities and up to 40% in securities of issuers economically tied to emerging market countries. The fund will normally maintain an average portfolio duration of 0-8 years and uses leverage in order to enhance yield and total return potential.
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