Tags: Pikelny | Pimco | high income | investment

Morningstar's Pikelny: Pimco High Income Is 'Bad Investment'

By    |   Sunday, 20 April 2014 07:01 PM

Morningstar analyst Steven Pikelny doesn't mince any words in his criticism of the Pimco High Income Fund (Ticker: PHK), run by Pimco Chief Investment Officer Bill Gross.

"Despite the value that Gross might add to this high-risk strategy, High Income is simply a bad investment at its current premium," Pikelny wrote in a report obtained by Barron's.

He was referring to the 53 percent premium of the fund's share price to its net asset value (NAV) as of Thursday.

Editor's Note: 18.79% Annual Returns ... for Life?

The fund has offered an eye-popping annual total return of 27.7 percent on its share price over the past five years.

Given that return, it's no surprise that the fund takes some risk.

"Gross routinely utilizes the fund’s closed capital structure to make concentrated sector bets, take positions with high degrees of duration and credit risk, and use plenty of leverage and derivatives along the way," Pikelny said.

And that can hurt returns, he pointed out. "It’s not unusual to see the fund’s NAV gains or losses reach double digits in a single quarter," Pikelny wrote. "The most obvious disadvantage of buying this fund is its share price risk."

Gross has been ensnared in controversy since Mohamed El-Erian announced his resignation as Pimco CEO in January, reportedly because of a conflict with Gross. "It’s been like a near-death experience, an emotional blow," Gross told Bloomberg Businessweek

"Whenever I read the newspaper, I say to myself, 'At least my wife loves me.'"

Editor's Note: 18.79% Annual Returns ... for Life?

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Morningstar analyst Steven Pikelny doesn't mince any words in his criticism of the Pimco High Income Fund, run by Pimco Chief Investment Officer Bill Gross.
Pikelny, Pimco, high income, investment
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2014-01-20
Sunday, 20 April 2014 07:01 PM
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