The Bashing of PIMCO GIS Income Fund Which Offers Over 6.3% Annual Payout Yield.

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. 

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 defaults 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?

[P.S: Please also see the sharing by Hello World blogpost related to PIMCO: "Pimco Income Fund (any good?)"]

Investment Portfolios Updates (27 June 2025) - Net Investment of S$750K and Projected Annualised Passive Income of S$46K.

Singapore REITs suddenly sprang back to life with the anticpation of 2 more rate cuts in 2nd half of FY2025. More funds also moved from overseas markets into the local SGX. My gross portfolio managed to hit the above S$1.02Mil mark again albeit the see-saw ride from Donald Trump's erratic policies from import tariff fight with other countries (the most recent one is with Canada and sending US airforce to bomb Iran). Net investment (including cash) is approximately S$750K as at 27 June 2025. I guess this is not bad considering that I had cashed out S$10k from my unit trust bond funds for personal expenses usage.

1. Portfolio 1- Stocks Held in SGX Central Depository 

2. Portfolio 2- Margin Purchased Securities

(Note: My margin purchased securities has grown to a sufficient scale to sustain itself and can pay off annual financing charges as well as to gradually pay down the margin loan through dividends generated.) 

Have continued paying down my margin loan from S$272K to S$267K. Going forward, will target to bring the margin loan utilisation down to S$250k hopefully by year end in case Donald Trump screw up the world economies again.

In addition, I have also sold off part of my Keppel Corp stocks (1,000 shares) as its price hit over S$7.35 per share to recycle the capital into Alibaba (9988).

3. Portfolio 3 (with Tiger Brokers and MooMoo) 

(Venture into higher risk as well as capital growth stocks here)

I have added 400 shares of Alibaba when its price drop back to HKD110- HKD113 range over the past few months as it is now a cloud and also AI tech play on top of its usual core E-commerce business.

Also added 10,000 units of Lendlease Commercial REIT in end May 2025 when its price plunged to S$0.480 per unit. Its price has since recovered to S$0.525 per unit as at 27 June 2025.

4. Portfolio 4 (Endowus Unit Trusts & Other Investments)

I have taken out S$10K from my Higher Income Endowus portfolio for personal usage. Also did a bit of rebalancing and direct purchase of PIMCO bond fund as well as Pine Bridge Asia Pacific fixed income fund. 

In addition, decided to buy into the Fidelity APAC Dividend Fund to to reduce US equities exposure in my unit trusts portfolio as US market is way overvalued (near 52 weeks high and extremely high PE ratio for many US firms) right now. 

Parting Thoughts

I am keeping my fingers crossed that there will be at least 2 more rate cuts this year so that interest rates go down and REITs continue to increase their distributions.

Asia Focused Bond Funds Besides PIMCO GIS Income Fund Which Has Overly Concentration in United States.

With the numerous online concern by many folks over the weakening USD and US inflationary pressure from Donald Trump's import tariff, the popular PIMCO GIS Income fund and other US bond funds which are heavily concentrated in US assets has been making people very uncomfortable. The funny thing is that the market cannot decide on whether it will be an inflationary environment or a declining interest rate environment (from imminent rate cut due to worsening business sentiment). There are currently 2 Asian bond funds which I have considered for diversification away from US geographical sector over-concentration.

1. PineBridge Asia Pacific Investment Grade Bond Fund

The 12mth yield for this fixed income fund is at 5.63%. Howver, annualised 1 year return has only been at +2.70%. Strangely, despite it being an Asia Pacific focused bond fund, it contained 2.16% of US bonds in its portfolio- but I guess this is a lot better as compared to the Fidelity Asian Bond Fund which I will discuss further below in Pt 2.

2. Fidelity Asian Bond Fund

As aforesaid mentioned, a surprising high amount of 27.32% of its investment in bonds is in the United States albeit being an Asian focused fixed income fund. It is giving out 5.65% of distribution yield. Its annualised 1 year return of +2.56% is almost similar to the PineBridge Asia Pacific Investment Grade Bond Fund. 

Parting Thoughts

I am currently vested in the PineBridge Asia Pacific Investment Bond Fund as it has the least concentration of US assets in its geographic allocation relative to Fidelity Asian Bond Fund. My personal experience of a higher return fixed income fund is still PIMCO GIS Income Fund which delivered an annualised return of 4.61%. With the economic downturn, it is inevtible that the distribution yield of all bond funds will continue to go further down and prices of bond funds will have potential upside. Anyway, good to put away some of my investments in bond funds which do help a lot in reducing wild volatiltiy in valuation as compared to my equities holding. 

Additional Thoughts on Unit Trust PIMCO Income- Opaque and Little Transparency Leads To Weird Theories.

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. 

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.  

The Bashing of PIMCO GIS Income Fund That Gives a High 6.5% Distribution Yield- Sustainable Or Junk Bond Fund?

Recently, 1M65 Mr Loo has been talking about his potential investment target into the PIMCO GIS Income Fund which gives a more than 6% annual distribution yield (with payout on a monthly basis). On the contrary, we have Master Leong bashing the PIMCO GIS Income Fund ("PIMCO GIS") for various reasons such as the fund being mostly US focused (and his view that USD is weakening and thus upcoming huge forex losses for those who invested). In addition, Master Leong also warned about its high risk investment into assets such as the Mortgage Backed Securities ("MBS") credit default swap instrument. The credit default swap makes up about 20.22% of the investment of PIMCO GIS. Master Leong also mentioned that PIMCO GIS is using leverage which is extremely risky. Also, based on current US treasury yield of 4% to 4.45% (depending on the tenure), Master Leong asserted that the sustainable yield is only around 4% and the excess of 2% plus return is actually from capital. Henceforth, Master Leong is insinuating that PIMCO GIS NAV fund price is on a perpertual downward trend due to depleting payout funds from original capital.  So, is PIMCO GIS a junk investment as per what he asserted?  

1. Seeing with your eyes rather than hearsay- Is PIMCO GIS gone case?

Master Leong is a contrarian and has been gaining fame recently for his stock-picks which adopts the value investing approach. He has been highlighting the overvalued US market (28 times earnings) relative to China/Hong Kong markets (12-13 times earnings). For PIMCO GIS, based on my own personal experience, it is not exactly as bad as what Master Leong asserted.

2. Assertion that PIMCO GIS has too much USD (which is weakening over the long term) exposure.

The fact is that PIMCO GIS is hedged to SGD. The only issue here is what is the effectiveness of the hedge. To illustrate using a quick high level mental acrobatics exercise, if the hedge is 70% effective and say one invested S$100,000 into this unit trust, then S$30K will be exposed to USD foreign currency movement. So a drop of 20% in USD vs SGD will mean a S$6K capital loss in 5 to 10 years. This potential decline is actually already compensated via the interest income in a single year. So it is a fallacy that the entire S$100K of investment is being exposed. 

My PIMCO GIS investments so far has held up well with its capital value intact since mid-2023 and I have been getting 6%+ annual return via the monthly distribution into my bank account.  

 

Of course, if one has bought it during the pre- drastic inflation period of 5 years ago (2020-2022), then one would have been sitting on heavy capital losses (please see NAV chart above) . The capital losses from this period is certainly not because of USD weakness but mainly due to the surging Treasury risk free rates from near zero percentage (due to raging inflation) whereby the US Fed suddenly went on a spree to adjust interest rates upwards swiftly. The old adage of bond prices is inversely proportional to interest rate is unchanged here for this bond fund. 

3. Assertion that PIMCO GIS uses lots of leverage which amplify gains but also losses.

Strangely, even Master Leong is unable to provide an exact figure of how much leverage is being employed by PIMCO GIS but then insinuate that this is a major factor. So, I will suggest folks to raise query directly with their platform or PIMCO GIS fund manager. Else, it is hard to decipher whether this is a material number. For myself, I have also been using leverage in my equities investment and levergae is not a dirty word. Key to employment of leverage is risk management and the quantum of leverage employed. The track record for PIMCO GIS has been wonderful especially for my current foray into PIMCO GIS via Endowus.

4. Assertion that MBS credit default swaps are highly risky

I think that MBS triggered off crisis from 2008 global financial crisis is real. However, lot of investments also collapsed during a deep recession for both equities and bond funds. So, not a fair point. If you want safe risk free investment, then the rate of return will be only 2% to 3% in Singapore. PIMCO GIS as per above illustrative screenshot is a well-diversified bond fund.

5. Assertion of High Fund Level Expense of 1% to 1.5% for PIMCO GIS

Endowus PIMCO GIS is only 0.85% (0.55% fund level + Endowus 0.3%). The 1% to 1.5% is probably referring to the PIMCO GIS being sold by local banks and their relationship/investment managers.

6. Assertion that the sustainable return (interest income) of PIMCO GIS is only 4% with rest of one-third payout from capital

I really have to disagree with this assessment and assertion: 

(i) MBS Credit default swap already around 6.5% to 7%; 

(ii) investment grade bond and high yield bonds in the portfolio 5.5% to 8%;

(iii) Treasury bonds- 4.45%. 

Based on above interest income return and the weightage mentioned in item 4, I thought it is fairly close to 6% hence I am puzzled by the comment that one-third of PIMCO GIS distributions are being paid-out from capital.

Parting thoughts

The beauty of a bond fund is the sheer number of bonds inside it that enable one to have a well-diversified portfolio of bonds to prevent over-concentration risk should an entity default on its bond obligation. For an income investor, I am fine with the NAV movement volatility. So far (touch wood), my investments during the high interest rate period from 2023-2024 seems fine. Even my recent tranche in 2025 is holding up well in terms of its NAV capital value. 

Do take note that bond funds will still have its share of market risk and does not mean that they are risk free. Ok, that's all for today....Bye folks and have a great week ahead!