FSK - 13.8%-Yielding PDI Is Getting Riskier And Is A Sell
2024-05-29 08:05:00 ET
Summary
- PIMCO Dynamic Income Fund has held up well in the short term, but its long-term outlook is getting riskier.
- We look at the macroeconomic and fund-level aspects that make it a sell right now.
- We also share a better alternative that even offers a higher yield.
We expressed our bearishness on the PIMCO Dynamic Income Fund ( PDI ) three months ago due to its 12.41% premium at the time, which seemed quite rich. Moreover, Howard Marks of Oaktree had warned that the loans in which PDI primarily invests are probably at the lowest quality they have seen in many years. Meanwhile, Ares Capital's ( ARCC ) CEO had just warned that defaults in the industry were likely going to increase this year with liquidity getting tighter and tighter. The fund's high leverage and its 1.92% management fee combined to make it a potential disaster waiting to happen. Since then, the fund has held up fairly well, delivering a total return of 2.52%. While this has trailed the S&P 500's 4.18% return over that period and lagged our own portfolio's performance considerably, it is still a better return than our sell rating would have implied....
13.8%-Yielding PDI Is Getting Riskier And Is A Sell