Gross is telegraphing to shareholders that the move in high yield is over. Why else would he convert the fund to a 50% high yield fund? With that transition to higher quality bonds will come lower yields giving Gross the cover to cut the dividend based on the fund's new profile. It will happen. You cannot reduce your allocation to high yield lower quality holdings without reducing your average coupon/fund yield.
He is looking out for current shareholders by giving them two months notice of the transition while the fund is still trading at a substantial premium to NAV. The yield chasers will be heading for the exits. Don't get caught in the crush.
looking for entry if dividend is cut as posting analyst here states and bond quality raised. could mean cut to .o5 per month which will mean a stamped out the door. could mean a discount which means in 6s for stock big risk holding this now
Below is the language from the original registration statement that is being amended. Substituting 50% for 80% reflects the amendment. The fund will be reducing its exposure to junk bonds which will ultimately negatively impact yield-oriented investors since junk bonds typically have significantly higher yields than investment grade bonds. The question can no longer be whether the dividend will be cut, merely when. ______________________
The Fund will normally invest at least 80% of its net assets (plus any borrowings for investment purposes) in debt securities that are rated below investment grade (below Baa by Moody's Investor Service, Inc. ("Moody's") or below BBB by Standard & Poor's Ratings Services ("S&P")) or that are unrated but judged by the portfolio manager to be of comparable quality. The Fund will not invest more than 10% of its total assets in securities that are, at the time of purchase, rated CCC/Caa or lower by each agency rating the security or that are unrated but judged by the portfolio manager to be of comparable quality. The portfolio manager believes that certain below investment grade debt securities may offer attractive yields relative to associated risk. Debt securities of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal, and are commonly referred to as "junk bonds." Due to the risks involved in investing in junk bonds, an investment in the Fund should be considered speculative.
>>> Gross is telegraphing to shareholders that the move in high yield is over. Why else would he convert the fund to a 50% high yield fund? <<<
I think you nailed it. In the long run it is probably safer and more appropriate for a flagship Pimco fund, and I would expect a div cut in the future. If the yield on NAV drops a few percent, maybe the fools that have pushed this up so high will go away and it might become worth investing in again.
Maybe you're right about the announcement today. Not sure what the reason for it is, but it's kinda strange given that this portfolio already containes less than 50% of high yield bonds! Look on their website. roughly 20% are mortgages, and 20% are investment grade corps If my memory serves me right.
The way I see it, either the dividend is gonna be cut or they're gonna do a big secondary offering. Either will cause the premium to plunge. There is no other way to sustain the assets really. Also, I'm sure Pimco and Bill Gross don't like the 50% premium. Makes the fund look like a joke. No serious portfolio manager would be playing these games.