Core Insights - The article provides an update on the PIMCO CEF suite, focusing on distribution coverage changes and the allocation profile of the Dynamic Income Strategy Fund (PDX) [1] Distribution Coverage Update - Distribution coverage across taxable and tax-exempt suites has continued to grow, with PDO being the only taxable PIMCO CEF with coverage above 100% at 116%, while the average for the rest is 73% [2] - Municipal fund coverage levels have risen to an average of 113%, with all PIMCO Muni CEFs exceeding 100% coverage, despite stable short-term rates and fixed asset coupons [4][5] - The increase in Muni coverage may be attributed to falling Muni yields, rotation into higher-coupon Municipal bonds, and a buyback of expensive auction-rate preferreds [5][6] PDX Fund Allocation - PDX has shifted its strategy from being energy-focused to a more diversified approach, now allocating only 2.7% to the energy sector, while maintaining a significant allocation to equities and MLPs [8][10] - The fund's current allocation aligns with its strategy guidelines, and it is not expected to shift significantly in the near term [11] - PDX's discount has stalled around a double-digit level, contrasting with a double-digit average premium in the rest of the PIMCO taxable suite [11] Performance and Valuation - Taxable PIMCO funds with strong year-to-date returns include PAXS and PDO, with PDX outperforming due to the strength of the MLP sector [12] - The average premium of taxable PIMCO CEFs is around 18% above the rest of the taxable CEF market, indicating a relatively high valuation compared to historical levels [14] - NAVs of taxable funds have fallen significantly since 2022, making them more attractive to some investors due to increased distribution rates [18] Market Environment - The performance of CEFs is influenced by broader market conditions, with current valuations indicating a potentially expensive environment for new capital [20] - The article suggests that better entry points for CEFs may be available in the medium term as discounts widen and nominal interest rates rise [20]
PIMCO CEF Update: PDX Not In A Hurry To Be A Credit Fund