The PIMCO GIS Income Fund has an extremely impressive pay-out rate of approximately 6.30% per annum. It invests in mostly fixed income like US government bonds, corporate bonds as well as mortgage backed securities. Interestingly, it has been getting flanks recently on social media for various reasons. Some of these retail investors frowned upon the points that part of the invested assets such as mortgage back securities are risky and that there are drawing down of leverage for its investments which will magnify losses. Additionally, its Net Asset Value ("NAV) per unit has gone down from its S$10.98 peak 5 years ago hence there is another assertion of PIMCO making high pay-out via its original capital which implied an ever declining NAV per unit.
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| High Distribution Yield of Over 6% |
1. Declining NAV Per Unit?
I think a picture speaks more than a thousand words. So I attached the NAV per unit chart over the last 3 years (2023-2025) of post COVID era and exclude the low interest rate environment era (2022-2023). Based on the above chart, we can see that PIMCO GIS Income Fund NAV per unit is pretty much stable over the last 3 years.
I will not want to compare the low interest rate environment performance with the sudden interest rate spike era as the fair value definitely would have fallen given the inverse relationship between value of bonds and interest rates. Investors during those period would also have received the interest payment distribution to cover the valuation decline.
We must all remember that fixed income securities are not the same as Singapore Government Bonds or Singapore Saving Bonds which are close to being risk free. Consequently, there will always be a degree of capital loss risk when we decided to invest in a fixed income fund but which offers a higher interest rate.
2. The Fear of Mortgage Back Securities ("MBS") in PIMCO Funds
This probably stamped from the Global Financial Crisis in 2008 and many older folks still vividly recalled the toxic subprime mortgages that triggered the avalanche of default and bankruptcies. I think that we need to have an objective view on this item.
I attached the below extract from the PIMCO November 2025 Income Strategy Update:
<Quote>
Q: Agency mortgage-backed securities (MBS) remain a focus in the Income Strategy. What is your outlook for the position?
PIMCO Chief Investment Officer (Daniel J Ivanscyn): We continue to like agency MBS. They have been trading at wider spreads than investment grade corporates, which is highly unusual as corporates tend to be more sensitive to economic fundamentals. Also, the market for agency MBS offers an attractive liquidity profile, enabling us to remain nimble.
Agency mortgages tend to benefit from periods of low interest rate volatility, which has generally been the case this year, though the situation is evolving. Agency MBS also tend to perform well when the yield curve steepens as the Fed cuts short-term rates. Also, the Fed ending its balance sheet reduction should be another tailwind for the asset class.
We are often asked about the potential privatization of the government-sponsored enterprises (GSEs). Treasury Secretary Scott Bessent has clearly stated that any action on the GSEs must not raise borrowing costs or disrupt the mortgage market. Thus, we see privatization as a minor risk.
</Unquote>
Parting Thoughts
Personally, I am vested in PIMCO Income Fund via Endowus and I believe it is widely diversified enough that it will not collapse till becoming worthless unlike buying individual stocks or holding on to a single fixed income instrument. There will always be market risk even for a fixed income fund in exchange for a relatively higher interest income yield. There is always a triple-conflicting dilemma of (i) capital guarantee, (ii) high dividend/interest return yield and (iii) least volatility facing any financial asset class. One simply can't have all cake and eat it right?
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