PDI vs PIMIX (PONDX)...good time to consider a switch?

bee

PDI is a Closed End Income Fund offered through Pimco. With its recent discount to NAV I was looking for comments on the difference between PDI to PIMIX (PONDX). Looks like the ER is around 1%. It has outperfromed PIMIX (PONDX) long term, but under performing right now. Is it a different animal? I like the management and the performance of PONDX and wonder if this is a good time to pair PONDX with PDI.

Since I already own PONDX, My thought is taking a portion and exposing it to PDI at this point in time might provide me with exposure to both PONDX and PDI pairing these two investments much like is described in this article:

the-leveraged-income-and-alpha-strategy-part-3

andrei

I would suggest more bond-knowledgeable people to comment, but I consider the same question now. PDI is sold at a big discount now, which is very unusual for this fund, and for PIMCO closed end funds in general. The question is whether this is a signal that people are preparing to exit leveraged bond funds using the same exit door, which creates price dislocations. If this is just a temporary effect, this is a great time to buy PDI. If on the other hand "bond bull market probably ended on April 29" as Gross said, then there will be increasingly more people trying to exit, all at the same time, and the discount will only grow, perhaps for quite a while longer. This is what happens today, I believe.

I must emphasize that I am not an expert in bonds, so I would encourage others to comment.

BWG

PDI can and does use leverage.

BWG

mnzdedwards

Reply to @andrei:

I'm attracted to the current discount but I'm also very wary of it, as seen by yesterday's NAV price action (-1.15%) and PDI's price (+0.88) that quickly closed the discount by 2.03%.

I'm afraid PDI's NAV will catch up (or more literally, down) with the depressed PDI price, therefore not producing the desired 'alpha' that most CEF investors desire when a fund trades at a large discount.

But I'm watching PDI very carefully as well, especially it's chart, which is absolutely sick right now.

http://stockcharts.com/freecharts/gallery.html?pdi

Mike_E

AndyJ

Reply to @mnzdedwards: Agree with Mike. I'm considering moving some PIMIX to PDI, but I'd like to see the NAV stop falling at least briefly before I sink $ into it.

fundalarm

bee, it doesn't make sense to have both. they both are managed by the same guy and, basically, have the same holdings. pdi has fewer restrictions and uses more leverage and 'sexier' securities that the closed-end structure allows. you can cut a portion of your pimix/pondx holding and invest in pdi -- the discount is very decent now -- and see whether you're comfortable with the cef's maddening volatility. don't forget that 1% of pondx equal 1.45% of pdi -- because of leverage. good luck, fa

ps: for full disclosure, i have been holding pdi ever since its ipo premium disappeared.

ron

your going to have a much smoother ride with PIMIX. Lower duration, no leverage, more
portfolio diversification but if you like volatility and more excitement PDI will give it to you.

andrei

The strategy outlined in the reference given by bee is buying PDI when it is sold at a significant discount (like now), and selling it and buying PIMIX when PDI sells at a premium. Now PDI is sold at a discount of 7%, so this is the decision time for those who want to use this strategy.

bee

Reply to @andrei:
Hey Andrei,
Another big drop today for PDI. Down 2.3% as of 2:30 pm est. Will be interesting to see how much of a drop PIMIX experiences. Looks like a 5% diiferential between PIMIX(PONDX) and PDI. Monitoring and keeping this strategy option on the table.

andrei

Yep, I made a mistake today of buying PDI today half way down. I wonder what is going on there.

BWG

Note that PDI's NAV is up 0.19% today!
http://www.bloomberg.com/quote/XPDIX:US

Either this downward move in PDI is portending a decline in the NAV of PDI or someone holding PDI is panicking/going bust.

According to David Schawel (https://twitter.com/DavidSchawel), "it's leveraged non-agency MBS. Underlying bonds down 5% while fund down 10% on top of that. Not selling dollars for 90cents." He has been bullish on PDI in the past. Here is an older blog post by him on non-directional fixed income investing
http://blogs.cfainstitute.org/insideinvesting/2012/08/27/non-directional-fixed-income-investing-strategies/

The trading volumes on PDI are above average. There is some talk on Twitter of an mREIT in trouble/liquidating. I am not sure if mREITs can hold CEF's but could that explain the price drop on PDI?

I am long PDI

BWG

andrei

PDI down again. Look at an interesting article about it: http://seekingalpha.com/article/1492482-closed-end-fund-discounts-widen-so-what-are-you-buying?source=yahoo

Old_Joe

Having invested in nothing but mutual funds for the past few years, I'm woefully ignorant of many of the attributes of the newer products, although I do understand generally the mechanism of ETF's. I'd really appreciate an explanation and comparison of the pros & cons of the PDI CEF and PONDX. Since they are both managed by the same guy, this provides a good basis for comparison between "different types of apples".