Trader Mailbag: What’s the Deal with PHK?

Hi Mike,

-Tom

Hi Tom,

Thank you for the question.

Indeed, I have been in the PIMCO High-Income Fund (PHK) for a long time and it has been clobbered, dropping from a peak of $10.15 in August to $8.55 today.

PHK is a closed-end high-yield bond fund that uses leverage to juice its returns.

Closed-end funds are significantly more volatile than plain-vanilla ETF's and mutual funds.

And PHK has been trading at a giant premium to net asset value (NAV).

So with the high-yield market coming under pressure on the decline in oil prices and pre-election jitters, PHK has gotten slammed, with that premium to NAV closing hard.

As I've discussed before, I only like buying volatile closed-end funds like PHK on extreme down days.

Why?

Because they get absolutely destroyed, creating attractive buying opportunities.

As far as my long-term strategy with PHK goes, it's a buy and hold position for me, and I just leave it alone with dividends reinvesting. That helps cushion me against the short-term volatility, which can be pretty extreme.

I'd only consider another outright buy on a dip below $8.