Considering putting some long term savings into either CIM (current yield 15.9%) or PETCX (current yield 32.7%)...both are in similar price range of $4.15. Does anyone have any experience in PETCX and why should I invest in CIM if PETCX is double the return currently? Any comments / feedback appreciated. Thank you.
My advice is to never ever buy PETCX if you can buy PETDX. PIMCO Real Estate comes in several classes and classes A, B and C are load funds and have varying expenses depending on the nature of the load. Class D has no load and its expenses are not higher. So always buy Class D. If you can afford to buy Class I then you're probably not asking questions on a Yahoo board since the minimum is $1 million.
I own PETDX. While it appears to be a black box if you take the time to read its annual report and dig into its financials on the PIMCO website you can learn what some of the underlying investments are that PETAX invests in. Just don't look at the top 10 holdings because those are the TIPS that the fund buys and then uses as collateral to buy derivates. They get a gain on the TIPS as well as their real estate derivates.
Don't bank of a gain in NAV because it is one of a set of PIMCO mutual funds that is designed to pay out high dividend yields to investors rather than build its NAV. So when the market crashed in 2008 this fund and some other PIMCO open end funds went without a dividend for nearly two years. Then at the end of 2009 some of them paid a massive dividend. That is why you see a huge NAV drop at the end of 2009.
Morningstar rates it a one star because their system is purely objective and this fund is too new and much of its history is tied into 2008-09 and the recession. So that skews its Morningstar rating.
I own PETDX, PCKDX (a rare high dividend paying small cap index fund using the same TIPS and derivates strategy), and PIPDX.
I think PETDX could have a role in some asset allocation strategies for some investors. it does for me. But it's not for everyone. One person on the PETAX board was complaining about the NAV not going up and I had to explain to them that they had received a massive +30% dividend yield for the year and that was why. So if it's dividends you're after (a Roth would be the best place for this fund) and not capital gains then it might work for you.
They buy derivatives on real estate stocks and presumably should move at a multiple of an index of REITs.
However, you don't really know what sort of leverage they have at any particular time. You are trusting their management to buy the right derivates and make the right bet.
If you think CRE is likely to have a continued recovery, this may be a good opportunity. However, if you look at the chart during the early stages of the financial crisis, you can see that a lot of value was destroyed as real estate fell out of favor.