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(1) Some investors have had Pim multisector CEFs in general close to hair trigger for a few months now, because the monthly UNII/earnings reports have been showing lower distribution coverage - and this month's (which came out on Monday) was somewhat more brutal, with UNII falling quite a bit for several funds. PCI's been one that's been hit the hardest on that score. There's been a nice runup since the first very short-lived selling bout earlier that was an apparent response to one of those earlier data disclosures, so there'd prob'ly been some short-term valuation concern building after the recent runup.
(2) There was a really silly article on Seeking Alpha (which if I recall right, also came out on Monday) by some "advisor" who demonstrated in the piece that he doesn't understand CEFs or Pimco's strategies. It cast a shadow on PCI specifically. Appeared it was widely read, so it may have had an influence.
So the selloff started w/PCI but has since spread most of the way across the Pimco multi landscape, presumably because most have had lower distro coverage from income lately. (The average CEF investor is an individual investor who's in 'em for the income, so selloffs based on fears of income cuts are common.)
However, given the continuing, large NAV gains of '17, quite a bit higher than the sum of the distributions, there shouldn't be much doubt that most or all of the funds can meet the stated distributions for quite a while before there's a real question about it. They've likely got good cap gains on non-agency mortgages and other assets they can bring into the distribution stream if and when they want.
A lot of this stuff gets discussed on the M* CEF board.
-- AJ
P.S. The selloff started in the only Pimco multisector then trading at a discount.
Something to add to the reading list: a good article from Alpha Gen Cap on Pimco CEFs: see the part about GAAP accounting's limited applicability to funds that are more total return-oriented/positioned, e.g., with big slugs of non-agency mortgages ... which dovetails with the point above about Pimco NAV gains.
Hat tip to HiddenPointe on the M* forum for the catch; I'd given up on Alpha GC based on what seemed to be mostly advertising articles (for a paid service they offer) without a lot of substance - I've signed back up now to receive their pieces again.
"Many investors cannot stomach the volatility. If that is the case, they shouldn't be invested in closed-end funds in the first place. However, this low-yield environment and equity market valuations have forced investors out on the risk spectrum. We label these investors transient holders as they are likely to sell quickly at the first sign of panic."
A different take on the mini-selloff, focusing on PCI: the thesis is that slight ticks down in the rate of NAV appreciation were the trigger. (Could apply to most Pimco CEFs.) The author traces the phenom back a few months.
Imho, it's a little hard to believe all the sellers noticed the slight, short-term leveling off of NAV gains, which were easy to miss and still beat the distribution rate; maybe a few got the ball rolling and general selling followed (?).
Comments
Regards,
Ted
(1) Some investors have had Pim multisector CEFs in general close to hair trigger for a few months now, because the monthly UNII/earnings reports have been showing lower distribution coverage - and this month's (which came out on Monday) was somewhat more brutal, with UNII falling quite a bit for several funds. PCI's been one that's been hit the hardest on that score. There's been a nice runup since the first very short-lived selling bout earlier that was an apparent response to one of those earlier data disclosures, so there'd prob'ly been some short-term valuation concern building after the recent runup.
(2) There was a really silly article on Seeking Alpha (which if I recall right, also came out on Monday) by some "advisor" who demonstrated in the piece that he doesn't understand CEFs or Pimco's strategies. It cast a shadow on PCI specifically. Appeared it was widely read, so it may have had an influence.
So the selloff started w/PCI but has since spread most of the way across the Pimco multi landscape, presumably because most have had lower distro coverage from income lately. (The average CEF investor is an individual investor who's in 'em for the income, so selloffs based on fears of income cuts are common.)
However, given the continuing, large NAV gains of '17, quite a bit higher than the sum of the distributions, there shouldn't be much doubt that most or all of the funds can meet the stated distributions for quite a while before there's a real question about it. They've likely got good cap gains on non-agency mortgages and other assets they can bring into the distribution stream if and when they want.
A lot of this stuff gets discussed on the M* CEF board.
-- AJ
P.S. The selloff started in the only Pimco multisector then trading at a discount.
Hat tip to HiddenPointe on the M* forum for the catch; I'd given up on Alpha GC based on what seemed to be mostly advertising articles (for a paid service they offer) without a lot of substance - I've signed back up now to receive their pieces again.
"Many investors cannot stomach the volatility. If that is the case, they shouldn't be invested in closed-end funds in the first place. However, this low-yield environment and equity market valuations have forced investors out on the risk spectrum. We label these investors transient holders as they are likely to sell quickly at the first sign of panic."
Imho, it's a little hard to believe all the sellers noticed the slight, short-term leveling off of NAV gains, which were easy to miss and still beat the distribution rate; maybe a few got the ball rolling and general selling followed (?).
Hat tip to Aalan on M* for the link.