The Meaning of the PGP Discount

PIMCO CEFs remain popular income investment vehicles due to their generous distribution rates and strong historic total returns.

Recently, the PIMCO Global StocksPLUS & Income Fund has begun to trade at a discount after many years of trading at a premium and has attracted the attention of our readers and subscribers.

Intuitively, this makes sense – the fund used to trade at a huge premium – now it trades at a discount. What’s not to love?

The thing that investors need to keep in mind, however, is that PGP is not the same fund that it was years ago so comparing today’s discount to the yesteryear premium is apples-and-oranges. PGP has cut its distribution multiple times over the last few years (marked by red lines in the chart above) which then caused its premium to repeatedly compress.

We are fans of distribution cuts – they right-size the fund’s distribution and deflate premiums, making the fund less fragile from a price perspective. But by making those cuts, the fund has acknowledged its inability to maintain its high distribution rates over the longer-term. This means that the premium deflation is exactly what should be happening. Imagine a house down the road that was priced 3x its fair-value – now that it is priced at fair-value would you rush out to buy it? The fund is surely more attractive now than it was before – but being closer to fair-value doesn’t make it a steal.

Check out our Guide To PIMCO CEFs at Systematic Income for more on PIMCO CEFs.