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Pimco Income PONAX

CDmanFL
  |     |   286 posts since 2019

Hello Friends,

In our search for yield, I came across PIMCO Income Fund. You can buy it at the major brokerage firms with no load. Symbol is PONAX. It yields a consistent monthly rate of 3.6%. It’s of course not risk free, but it’s a behemoth fund with assets of $144 billion and tremendous expertise of management. Like all of you, I’m fed up with these low rates and losing patience. I’m thinking of putting a good chunk of my idle cash into this. Would love to hear your thoughts.

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Answers
Infinityy
  |     |   107 posts since 2020
The lowest cost share class, PIMIX, currently has an SEC yield of 2.47%. You're taking on a fair bit of credit risk to get that yield. For example, the fund lost 8.4% during the March COVID crash last year, and it lost about 10% during 2008-9. You'll have to decide if that kind of risk is worth it for an extra 1.5% compared to CD's.

If you are age 55+, multi-year guaranteed annuities (MYGA) can offer similar yields (2.5% - 3%) with less risk, if you limit your purchases to your state guaranty association limits
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CDmanFL
  |     |   286 posts since 2019
It’s interesting because even though it shows a SEC yield of 2.47% for the PIMIX share class, the ACTUAL monthly distribution for many months has consistently been 4.0%, or 3.6% for the PONAX share class, the difference being exactly the 0.4% expense ratio differential. I know this because a friend owns PIMIX in his 401K and we went back 8 months to see his ACTUAL monthly distribution and it’s exactly 4.0%. I’m perplexed why the SEC yield always shows a lower rate than the actual performance. Very odd for my simple mind. Can anyone explain this?
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Choice
  |     |   937 posts since 2020
Do you have any offering circular?
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Infinityy
  |     |   107 posts since 2020
You can find discussions about SEC yield vs distribution yield on the Bogleheads forum, for example https://www.bogleheads.org/forum/viewtopic.php?t=324242

In short, the NAV (net asset value) of the fund is expected to decline by the excess of the distribution yield over the SEC yield. If the distribution yield is 4% and SEC yield is 2.5%, the share price is expected to decline in value by 1.5%.
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CDmanFL
  |     |   286 posts since 2019
Thanks Infinity but it doesn’t make sense to my uneducated mind that the NAV is expected to decline by the excess because this fund’s distribution yield has, for the longest time, exceeded its SEC yield. I guess it could be argued that any fund is expected to decline at some point, but in the meantime, the 4.0% monthly payout is enticing, or 3.6% for the PONAX share class. I’m going to invest a few bucks in PONAX until we see some higher CD rates. Would love to get 3% on a 5 year. C’mon Powell, give us old timers something to smile about.
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Infinityy
  |     |   107 posts since 2020
The decline in the share price is an artifact of the bond pricing formula. When interest rates fall and bonds trade above face value, their prices must fall back down towards their face values as the bonds approach maturity (holding interest rates constant). This is the origin of the expected decline in share price.

Of course, interest rates aren't constant--rates change over time, causing the share price to fluctuate. But the fund will face a "tailwind" when distribution yield exceeds SEC yield.

If you're going to buy this fund, at least buy the cheapest share class. Why pay an extra 40 bps in expenses unnecessarily?
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CDmanFL
  |     |   286 posts since 2019
Unfortunately, my brokerage company (Fidelity) doesn’t offer PIMIX for an ordinary customer like myself. They only offer PONAX but at least it’s load waived. Thank you for helping me understand the intricacies of this investment. I’m going to dive in today. Fingers crossed.
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Infinityy
  |     |   107 posts since 2020
Just checked at Schwab and PIMIX is available with a $2,500 minimum, but there is a transaction/purchase fee ($50)
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CDmanFL
  |     |   286 posts since 2019
Thank you Brother Infinity! I may open a Schwab account in light of this.
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Choice
  |     |   937 posts since 2020
Flat over the ten years with the same down ticks for the last Great R and Covid-19…”goes with the flow, flo.” Widow meat.  Have to know when to get out…what’s new?
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lou
  |     |   1,004 posts since 2010
Forget about monthly distributions. The only metric you should look at are total returns for various time periods. According to Morningstar, they are pretty good. 1.20% YTD; 2.69% 1-year and 4.95% 3-year.
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