CEFs With Yield: Pimco Dynamic Income Fund (PDI)
Dividend Yield: 7%
The Pimco Dynamic Income Fund (PDI) is truly a dominant force in the multi-sector/mortgage-backed securities category. The CEF, which is managed by fixed income genius Daniel Ivascyn, commenced operations in May 2012 and has generated significant amounts of UNII ever since posting its first annual report.
PDI’s strategy relies heavily on the discounted pricing of mid- to late-2000s vintage non-agency MBSes. The fund works by pairing written-down packages of loans with other high-yield and emerging-market fixed income, then leveraging the portfolio by roughly 45%.
Ivascyn was able to out-earn the fund’s distribution policy of 19.1 cents per month by a margin of roughly 10 cents through the last reporting period. In addition, the portfolio management team implements hedging strategies using interest-rate and credit-default swaps to control volatility.
Although non-agency MBSes are essentially a shrinking market due to lack of issuance following the financial crisis, I believe Ivascyn as demonstrated an amazing ability to seek out undervalued sectors of the fixed income market to keep income flowing to his shareholders.
PDI’s track record since its inception is nearly unrivaled by other CEFs, and I believe superior expertise of management will allow it to continue well into the future.