Few people would call the PIMCO High Income Fund (PHK) “little” given its $1bn of total managed assets. However, it’s little in one regard – it runs at one of the lowest leverage levels in the PIMCO taxable suite of CEFs.
However, this didn’t stop the fund from delivering since we added it to our High Income Portfolio – the fund has the second highest total price return across PIMCO taxable funds and the biggest return across purely fixed-income funds (the reason PGP is slightly ahead is due to its equity exposure and, as we all know, stocks have just been on fire).
The fact that PHK outperformed the more popular funds PCI and PDI that run at much higher leverage levels has to do with a number of factors that take into account in our investment process. First, is valuation – PHK was much more attractive due to its both low absolute premium level as well as being well below its fair-value premium due to its very low management and leverage costs (well below the average PIMCO taxable CEF).
The second reason the fund outperformed is due to its yield curve steepener profile – this is such an important and overlooked feature of the fund that we wrote a whole article on it on SA.
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