JMM - PCN: Good Bond CEF With Fully-Covered Distribution But Huge Premium Is Problematic

2024-03-20 16:28:19 ET

Summary

• The PIMCO Corporate & Income Strategy Fund offers a competitive 9.88% distribution yield, higher than many of its peers.
• The PCN closed-end fund has underperformed the Bloomberg U.S. Aggregate Bond Index in terms of price performance over the past six months.
• The fund's high premium to net asset value and potential weakness in the bond market suggest a "hold" rating.
• The fund appears to be fully covering its distribution, although it was only able to accomplish this due to unrealized gains in the second half of 2023.
• The fund is trading at an enormous premium right now, which could cause problems if the Federal Reserve cannot justify interest rate cuts in 2024.

The PIMCO Corporate & Income Strategy Fund ( PCN ) is a closed-end fund, or CEF, that income-focused investors can employ in pursuance of their objectives. As is the case with most PIMCO closed-end funds, this one appears to be very good at the provision of income for its investors, at least at first glance.

As of the time of writing, the fund boasts a 9.88% distribution yield, which compares pretty well to many of the other fixed-income funds that are currently trading in the market. Morningstar classifies the PIMCO Corporate & Income Strategy Fund as a "Fixed Income-Taxable-Investment Grade" fund, so here is how its yield compares to that of similar funds with this classification:

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