This is following up on my last post on "The Bashing of PIMCO GIS Income Fund" on 20 May 2025. Since then, Mr Loo from 1M65 has also presented his extensive research by his 2 staff members. Similar to Master Leong, both concluded that PIMCO GIS Income Fund pays out one-third of its distribution from capital. Hence Mr Loo asserted that PIMCO GIS Income is functioning like our CPF-Life whereby one enjoy high upfront payout but the capital will be depleting as the recurring income is only two-third of the payout.
There are a number of extremely contradictory points:
1. Capital Distribution unsustainable may not be true.
Yes. Apparently, it is true that one-third of the distribution are from capital as per additional details published on PIMCO GIS own website. The current yield from income produced from the fixed income instrutment is only 4.6%. Hence if one pays out 6.5% per annum, then the difference of <1.9%> payout must be coming from capital. Therefore, arguably, PIMCO GIS Income is a declining fund that behaves like CPF Life. Saying that, I disagree with this CPF-Life analogy and I should elaborate further below.
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| Extract of Risk Free US Treasuries- 4% to 4.51% interest yield. |
2. The current yield of 4.6% does not make sense.
The least attractive yield of the financial instrument invested by PIMCO should be US Treasuries as these are usually considered risk-free. As per above screenshot, Us treasuries hover around 4%-4.5% currently. Hence the other component of PIMCO Income portfolio of commercial grade bonds will be priced at 1%-3% premium on top of any risk free bond rate. Also, PIMCO's investment into Mortgage back securities should be yielding between 6% to 7%. Taking into account basic logic, the theoretical yield can never be 4.6%. It will be a lot higher.
Did PIMCO publish the yield of 4.6% based on its historic original investment cost from the pre-spike in interest rate era and not after fair valuation downward adjustment? The maths looks pretty weird.
3. Published yield to maturity is 6.71% relative to the current yield of 4.63%
Now, if your current yield is only 4.63%, then how on earth will your yield to maturity hit 6.71%? This means that PIMCO does have strategy that works on reaping consistent capital gains from fixed income instrument.
Note that "yield to maturity" of fixed income instrument considers not only the coupon payments but also any appreciation or depreciation in the bond's price if it's held until maturity.
Parting thoughts
Based on the above 3 points, PIMCO is definitely not functioning like CPF-Life as per what 1M65 Mr Loo is asserting. I can only say that most unit trusts like PIMCO GIS is quite opaque and despite so many finance influencers analysing it, the only folks who knew the exact functioning is PIMCO themselves.
Need to also take into account eventually convert back to SGD the USD investments will have currency depreciation over time
ReplyDeleteHi Mate, yup, the USD forex risk is present and will most likely decline further given Donald Trump's current policy which not only will worsen the deficit but also lead to loss in confidence of US Treasuries.
DeletePIMCO is indeed opaque + its unit nav was downed/depreciated 20% last 2 years despite most stocks were doing very well. What u got was pathetic ~4.5% per year actual yield.
ReplyDeleteSo do u really think it will do better next 2 years based on current & forward market conditions?? I doubt so....its risk/reward ratio just doesn't make sense, so siam (avoid) if you can.
Hi justtoshare, full agree with your assessment on the risk/reward ratio. Quite hard to tell whether going forward will be stagflation (high interest rate + inflation) situation or recession and downwards revision of interest rates. Plus the worsening propsects of the world's reserve currency-USD.
DeleteNeed to take into consideration managements fee and other operating expenses ?
ReplyDeleteHi han, good point and question. Think this will be already covered in the annual expense ratio.
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