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investorpoet2 (82.11)

PFN

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September 17, 2009 – Comments (5) | RELATED TICKERS: PFN

I'm adding PIMCO Floating Rate Strategy Fund (PFN) today just to keep a close eye on it. It's trading very near its net asset value, so not much value there. However, it has a 8.23% dividend yield.

This is a closed-end fund that invests in floating rate debt instruments. I could be wrong on this, but shouldn't that yield grow in an increasing rate environment? With rates at historic lows, that growing yield should be nice in the long-term.

5 Comments – Post Your Own

#1) On September 18, 2009 at 7:57 AM, gembree (99.96) wrote:

I would be very careful. This is a leveraged fund invested in fairly risky instruments; junk bonds, sold credit default swaps, etc. It's going to get hammered in another downturn. Additionally, it's packing a 2% expense ratio you have to subtract from your returns.

A floating rate instrument is better than a fixed rate if rates are increasing, but you're still just keeping pace with the increase - it's not something that benefits from increasing rates in the way a fixed-rate instrument benefits from decreasing rates.

My personal pick would be GIFD instead - the expense ratio, when you factor in the implicit fees from the funds it invests in, is unfortunately pretty similar to PFN's, and most of the debt is fixed-rate with a low duration, which reduces the impact of interest rate swings. But the discount to NAV is 20%. Rather than paying $10 for $14 in assets and $4.20 in debt, why not just pay $10 for $12.50 in assets?

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#2) On September 18, 2009 at 9:28 AM, investorpoet2 (82.11) wrote:

Thanks, gembree.

I'll take a look.

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