Pimco is widely regarded as one of the nation's best bond-fund managers. Led by Bill Gross, its funds have delivered outstanding long-term records. More recently, they dodged the subprime-mortgage mess. So what a surprise to find a Pimco bond fund near the bottom of its category.
Pimco High Yield Municipal Bond is the bungler. Over the past year to May 12, the fund's Class D shares (symbol PYMDX) lost 10%, placing them in the bottom 20% of funds that invest in low-grade tax-free bonds, according to Morningstar.
High-yield munis include those rated below BBB by Standard & Poor's or Baa by Moody's. More than half of the bonds in this category are unrated. The debt typically finances hospitals, transportation projects and schools. Manager John Cummings and his team prefer bonds serviced by revenue from public-works projects instead of those that rely on taxpayers of a municipality to repay the debt.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Junk-rated munis took a licking during the past year's credit crisis, as investors sold practically everything that smacked of risk. But that's only part of the story. To guard against rising interest rates, Cummings sold short Treasury-bond futures, a bet on rising Treasury yields and falling prices. For most of the past year, however, Treasury yields tumbled, further denting performance.
Now here's the twist: The very factors that turned Pimco High Yield Muni into a dud over the past year could turn it into a winner in the coming year. The fund has stuck with its interest-rate hedge. And high-yield munis, like other risky parts of the bond market, have begun to recover as the credit crisis abates. In fact, from mid March through mid May, the Pimco fund returned 2.8%, beating the category average by a whisker.
Meanwhile, Pimco High Yield Muni yields a juicy 5.1%. That's equivalent to a taxable 7.8% for someone in the 35% federal bracket. The D shares, which are available through many discount brokers, levy no sales charge. The annual expense ratio is 0.79%.
-
Senior LIving and Memory Care Facilities Are ImprovingHere are the best senior living communities in 2024, according to a J.D. Power survey.
-
Like the ETF? Check Out the Cheaper CloneName-brand ETFs are offering lower-cost, higher-returning versions of their famous funds. For long-term investors, they might be a better deal.
-
Best Banks for High-Net-Worth Clients 2024wealth management These banks welcome customers who keep high balances in deposit and investment accounts, showering them with fee breaks and access to financial-planning services.
-
Stock Market Holidays in 2024: NYSE, NASDAQ and Wall Street HolidaysMarkets When are the stock market holidays? Here, we look at which days the NYSE, Nasdaq and bond markets are off in 2024.
-
Stock Market Trading Hours: What Time Is the Stock Market Open Today?Markets When does the market open? While the stock market does have regular hours, trading doesn't necessarily stop when the major exchanges close.
-
Bogleheads Stay the CourseBears and market volatility don’t scare these die-hard Vanguard investors.
-
The Current I-Bond Rate Until May Is Mildly Attractive. Here's Why.Investing for Income The current I-bond rate is active until November 2024 and presents an attractive value, if not as attractive as in the recent past.
-
What Are I-Bonds? Inflation Made Them Popular. What Now?savings bonds Inflation has made Series I savings bonds, known as I-bonds, enormously popular with risk-averse investors. So how do they work?
-
This New Sustainable ETF’s Pitch? Give Back Profits.investing Newday’s ETF partners with UNICEF and other groups.
-
As the Market Falls, New Retirees Need a Planretirement If you’re in the early stages of your retirement, you’re likely in a rough spot watching your portfolio shrink. We have some strategies to make the best of things.
