PFN - PFN: Not Worth A Premium To NAV

2024-05-09 22:43:11 ET

Summary

• PIMCO Income Strategy Fund II has underperformed its peers, including ETFs and other CEFs, during the recent monetary tightening cycle. This is attributed to poor individual security selection.
• The fund has a large allocation to common stocks/rights/warrants, which is a red flag and indicates restructurings of fixed income instruments.
• Pimco CEFs historically traded at a premium to NAV, but PFN should now be trading at NAV due to its underperformance.
• The fund has a 23% leverage ratio and a significant allocation to high-yield (HY) bonds, all while single-B credit spreads are nearing a decade low, posing a risk for the fund's NAV in a sell-off event.
• The article presents the methodology used to trim positions in a CEF and reduce exposure, without an entire position divestiture.

Thesis

The PIMCO Income Strategy Fund II ( PFN ) is a fixed income CEF from the Pimco suite. Prior to the recent monetary tightening period, Pimco funds were regarded as the golden standard in the CEF space. In the past few years however, the Pimco CEFs have lagged, denting that image to a certain extent....

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