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A Mid-Grade Bond Fund with a
7.1% Yield and Only Moderate Risk |
Published: November 26,
2007
The PIMCO High Yield Fund (PHYDX,
$9.47) is run by Pacific Investment Management Co. (PIMCO),
the world's biggest bond fund manager. With such expert
management at the helm, it's not surprising the fund came
through the recent sub-prime meltdown with flying colors.
PHYDX provides a variable monthly distribution. Over the past
twelve months, this amount averaged between $0.047 and $0.063
per share, and the fund paid a total distribution of $0.67 for
the year. At PHYDX's current price of $9.47, that brings the
trailing yield to hefty 7.1%. The fund's low expense fee of
0.90% takes a small bite out of total returns.
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PHYDX's mandate is to hold at least 65% of its assets in bonds
rated no higher than BBB (medium grade) but at least B (low
grade) in quality. Through this strategy, the fund aims to
capture high yields while at the same time moderating risk. The
duration of bonds in its portfolio varies between two
and six years, based on PIMCO's interest rate outlook. The
current average
maturity
of its bonds is a shade over four years, which is moderately
sensitive to interest rate changes.
As of its last report to unit holders, PHYDX held nearly 90% of
its roughly $400 million in assets in corporate bonds with
another 4% in cash. The fund is diversified, with no more than
around 2% of its portfolio in any single issue. PHYDX also
diversifies over industry group. Its largest current holding is
in the industrial materials industry, which accounts for 17% of
assets. That's followed by energy firms, which comprise nearly
13% of assets.
Over the past three turbulent months, PHYDX has left its
brethren bond funds in the dust, ranking in the top 3% of its
category. Long-term returns over the past five years have
closely tracked the benchmark Lipper High Yield Current Bond
Index. The fund has returned on average +11.33% yearly compared
to +11.65% for the Lipper Index.
Action To Take ---> An
economic slowdown may be on the horizon, which could increase
the risk of default for high-yield bonds. However, under PIMCO's
expert management, the fund should be able to navigate this
environment and continue to provide above-average returns.
Good investing!
Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com
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Carla
Pasternak draws on a variety of financial backgrounds to make profitable
calls on income-generating stocks for her readers.
Carla has
been employed in the investment industry for more than two decades. In
addition to her work as a writer for several other nationally recognized
financial publishers, her previous experience includes a position as
President of a well-respected investor relations firm. She has also been
writing shareholder reports for public companies (annual reports,
speeches, corporate profiles, slide shows, etc.) since 1980.
A highly
successful investment analyst, Carla specializes in high-yield,
income-paying stocks. In that pursuit, she's always mindful to select
companies that not only pay rich dividends, but that also have the
potential to deliver strong long-term capital gains.
On the
educational front, Carla holds both MBA and Ph.D. degrees. When she's
not watching the market, she's teaching business courses at the college
level and managing several million dollars in portfolio assets.
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