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PIMCO High Income Fund Message Board

  • mcrmgg2004 mcrmgg2004 Apr 18, 2009 7:44 PM Flag

    whats in portfolio

    not a holder of this have small loss over the year in hyb where discount has come down from 20 to 12 per cent.whats in portfolio that is enabling such a high premium over nav

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    • Summary:

      Basically, even though its a high income fund (junk) there is a lot of investment grade (bbb) bonds in it. Much of this investment grade stuff has been bought at huge discounts as though it was junk.

      So the theory goes, as the market recovers or at least stabilizes, phk nav will move up rather nicely, (its already starting to do that.)

      In the meantime, investors are enjoying a very good div.


      • 2 Replies to drwstring
      • You have not answered the question posed to this MB..
        So PHK owns a lot of investment grade discounted bonds that will appreciate when the economy gets better or when the financial crisis abates..Why then is it priced at 70% over the market value of these bonds..bonds that anyone can buy easily and certainly other funds can buy as easily as PHK can..
        In effect, your hopes of a strong move upwards are already being mortgaged by the huge premium to NAV.
        Suppose those bonds you mention go up by 60% from here (and this is not so easy to happen..)by tomorrow..where would be the incentive for the premium? Would you expect them to go up another 60% higher from there? so those bonds would trade and tiny YTM?
        What you will see is that PHK price will lag dramatically its NAV and its peers as that premium erodes over time..Just pure logic and the way markets operate long term..short term, we can certainly see anomalies like the rally of the past month..time will erode the premium , so the hedged trade of shorting pHK while longing any of its discounted peers will bear nice fruits long term.

      • Since the portfolio of jdd is approx the same, and it is selling at 50% less than phk, IF you believe that the potential rise is so great, wouldnt you expect that jdd outperforms?

        (There are lots of other equivalent funds selling at large discounts in the closed-end fund universe).

        As when the stock of phk was approaching $10 Feb 9, 2009 , the longs can gloat, as they did then, but ultimately, at 70% premium, it will underperform equivalent fund.

        do your own due diligence. I am not recommending jdd or phk,long or short, just using for illustration purposes.

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