Summary
- Shares of PAXS look to be trading rangebound and I have moved it onto my watchlist.
- The $15 level is critical as PAXS has bounced off of it several times already. I want to see if the next leg down stays under $15 for a significant period.
- If shares of PAXS close the gap between its NAV and share price without crossing the $15 level, I would strongly consider investing.
Recently I wrote an article on the PIMCO Dynamic Income Opportunities Fund ( PDO ) (( can be read here )), and several readers recommended that I look into the PIMCO Access Income Fund ( PAXS ). This Closed-End Fund ((CEF)) is just over a year old as it went IPO on 1/31/22. Since then -23.70% of its share price has eroded, which has pushed its yield past 10%. On the surface, PAXS looks interesting as shares look to be trading within a range, they trade under their net asset value ((NAV)), and PIMCO provided a 28.02% increase to the monthly distribution in September of 2022. I am invested in three CEFs from PIMCO, and PAXS has made it on my dividend income watchlist. PAXS does seem interesting and could make it from the watchlist into my account in the near future. I particularly like that PIMCO was able to not only increase the monthly distribution but pay a special distribution at the end of 2022. The falling price may be a gift for new investors and provide an optimal entry point.
What you're getting from PIMCO by investing in PAXS
Like PIMCO's other CEFs, PAXS primarily aims to generate current income with a secondary goal of capital appreciation. PAXS looks to accomplish this through its income-generating ideas across global credit markets, which the portfolio managers consider high-conviction investments. The assets within PAXS are allocated across multiple fixed-income sectors in global public and private credit markets. The investment mix is created from corporate debt, mortgage-related and other asset-backed instruments, government and sovereign debt, taxable municipal bonds, and other fixed, variable, and floating-rate income-producing securities of U.S. and foreign issuers, including emerging market issuers and real estate investments.
Of the CEFs that I follow from PIMCO, PAXS has the 2nd lowest total expense ratio at 1.79%, while the PIMCO Corporate & Income Opportunity Fund ( PTY ) has the lowest expense ratio at 1.13%. The PIMCO Dynamic Income Opportunities Fund ( PDO ), and Dynamic Income Fund ( PDI ) both have a total expense ratio that exceeds 2%, with PDO charging 2.79% and PDI charging 2.64%.
Since its inception at the beginning of 2022, PAXS has been on a downward decline, falling -23.70% from its IPO price of $20 to its current price of $15.26. While there isn't a long-term performance track record yet, PAXS has traded under its NAV for most of its existence. Over the previous year, PAXS NAV has fluctuated between $19.81 and $15.57 while its share price has fallen to $14.68, which is a -5.72% discount to the lowest its NAV has been. Some of the spreads between the NAV and its market price have been around 10%, while periods, where its market price has exceeded the NAV, have been far and few between.
PAXS has 30.59% of its bonds coming due within the next year, and another 12.28% maturing within the next 1-3 years. This is interesting because the Fed is expected to deliver 2 additional hikes. The maturing bonds in 2023 should allow PAXS to benefit from future rate hikes and roll the proceeds back into higher-yielding bonds. As another 12.28% come due within the next 1-3 years, some of these should theoretically benefit from rising rates and deliver additional yield through PAXS.
From an income perspective, PAXS is interesting. While shares have declined by -23.70% or -$4.73 since its IPO price of $20, PAXS has generated $2.12 in total distributable income. PAXS has paid 12 consecutive monthly dividends amounting to $1.60 and another $0.52 per share in the form of a special cash dividend. The special cash dividend was not a long or short-term capital gain distribution, it was an actual dividend distribution. For investors that purchased PAXS at the IPO price of $20, they have received $2.12 of income per share, which cuts the losses from -23.70% to -13.12%.
After the first 6 monthly distributions, PAXS increased the dividend by $0.33 (28%), bringing the monthly dividend from $0.1167 to $0.1494. This is significant, in my opinion, because even though the NAV and share price declined, its assets were still throwing off large amounts of income. There was enough income being generated by the underlying assets that PAXS was able to reward shareholders with a dividend increase even though the share value continued to decline. 2022 was a difficult economic environment, and many investments saw double-digit declines on a percentage basis. The fact that PAXS increased the dividend distribution throughout a difficult economic cycle is bullish in my eyes and leads me to believe that they will be able to maintain the current distribution.
Why PAXS looks interesting to me
It's not about where PAXS was at the IPO, it's about where it is today and where it is headed. I can't predict the future, but the chart for PAXS looks interesting. For the past year, PAXS has been caught in a downward trend, but has only broken the $15 level for a limited amount of time. Over the summer of 2022, each time PAXS flirted with $15 it bounced off the lows, and it was only until October when it spent a day or 2 under $15 before bouncing back. In December, PAXS also breached $15 but snapped right back and closed the gap between its NAV and share price for a short period of time.
I am keeping PAXS on my watch list for the time being as I want to see how the current trend plays out. PAXS has traded rangebound between $15 - $20, and I want to see if shares bounce off the lows here, or if PAXS will establish a significant period under the $15 level. Currently, PAXS trades at a -4.39% discount to its NAV, so there is room for it to maneuver. If PAXS breaks the $15 I would want to see how close to $14 it goes, and the range I would follow would be the $14 - $15 range. I would like to see PAXS bounce back to its current NAV of $15.96 prior to investing, or if it falls below $15, I would want to see that it doesn't take out $14 on the downside.
PAXS would strictly be an income investment for me. I like that it has increased the distribution, paid a special dividend, and the monthly distribution hasn't been interrupted. While the double-digit yield is great from an income standpoint, the fact that its NAV could be stabilizing is more interesting. Only time will tell, but investors may be able to get shares of PAXS close to its bottom. I will be watching PAXS over the next several weeks, and if shares don't take another leg down and stay under the $15 level, I will probably move it off the watchlist and into the income side of my portfolio.
For further details see:
PAXS: 10.46% Yielding Access Income Fund From PIMCO Is On My Watchlist