BIT: A PIMCO CEF Replacement?

Income investors are growing worried about the valuations on offer in PIMCO CEFs which are core holdings for many income portfolios. My favorite valuation metric for PIMCO CEFs is the average premium for those CEFs that have not made a cut since 2020. This is because funds like PHK, RCS and PGP that did cut also saw their premiums deflate – which is an entirely appropriate response by the market as these funds now offer lower yields. So , if we include these funds in our calculation it will depress the current PIMCO CEF valuation and make it look like PIMCO CEFs valuations are less expensive than they are in reality.

The chart below shows that this valuation metric s very close to its pre-COVID level which, itself, was very elevated over the last 5 years.

This is causing many investors to ask whether there are cheaper PIMCO CEF alternatives out there, with some investors, looking at the BlackRock Multi-Sector Income Trust (BIT) in particular. We did a deeper dive on the service with a public version of the article coming out in the next day or so.

Ultimately, there is no such thing as a PIMCO copy-cat CEF so investors have to pick and choose the different features on offer. BIT has a few attractive features – its duration is negative which should allow it to hold up well if rates keep rising. It also performed very well in 2020 – outperforming the average PIMCO CEF, which suggests that managers were relatively nimble in navigating the fall-out, which is not something I can say about many funds. On the negative side, BIT’s longer-term NAV performance is well below that of PIMCO CEFs, which, in my view, is owed to its up-in-quality stance, lower leverage and lower duration stance. In summary, BIT may look attractive for investors who want to take some chips off the table without dialing down distributions (BIT does have a fair-bit of ROC – though so do PIMCO CEFs, which doesn’t flat up as ROC – more to come here). If you haven’t read the public article, have a look for more details on our article stream.

Thanks for reading.

Check out more timely commentary as well as Income Portfolios and interactive Investor Tools at Systematic Income.

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.