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PONDX, how does it work?

edited July 2012 in Fund Discussions
I'm curious now about PONDX after reading Bee's input on it being her favorite "sleep good" fund. I'm generally skeptical about Pimco funds because I don't understand what they do with derivatives and shorting and all the currency games they play. Not that all that is a bad thing, just hard to get my head around it. M* lists it as a multi-sector bond fund but is it a 'normal' multi-sector bond fund?

This fund is being mentioned as a high return (~10%) low risk fund, but doesn't the hedging techniques cause other risks? Or do these technique actually work to control risk. That's the part I can't get my head around.

This sounds like a nice fund, almost to good to be true(?) Can anyone share more light on how it gets it's peer beating returns?


  • Be sure to also read the 2nd article listed in my post (Playing Defense in Search for Income)---

    Good insights/commentary from Dan Ivascyn who is the Fund Manager for PONDX.

  • from the attached commentary, it looks like PONDX is making money via investing in non-agency mortgages. Ivascyn also invests in leveraged loans. There are plenty of funds that do these separately. PONDX just marries the two most popular (recently) strategies and sprinkles some gov'ts into the mix for stability. I personally like trasparency, management and yield of Nuveen closed-end funds and have been invested in JRO since late 2008 (floating rate) and JMT (non-agency MBS) right after the IPO premium turned into discount (it is at premium again). Just like every other asset class, these have been quite volatile. When Fed was selling Maiden Lane (acquired from AIG) last summer, they killed the morgtage market. When inflation expectations change, the floating loans might not do well. One needs to understand and hold for the right reasons. PONDX lost 1.23% last august when Barc Agg made 1.5%. This is not your plain vanilla core bond fund. There is no free lunch.
  • Howdy fundalarm,
    As to PONDX and losing ground in August, 2011; I am sure this was part of Pimco's overall position of being light on Treasury issues at the time, to which Mr. Bill expressed a miscue later. PTTRX also found itself in a similar position of performance during this same period.
    However, the overall performance and recovery exceeds AGG. 'Course we know that a reference to many bond funds against AGG is a most difficult guage for a benchmark; as many bond funds holdings do not match against AGG.
    You made a very good point as to this change in August, 2011; and that all and any who hold bond funds may find any number of events that may cause problems with bonds of one type or another. Nothing is without risk, eh?
    Thank you again and take care of you and yours.
  • Barron's: Well-Timed Entrance

    Portfolio manager Dan Ivascyn led the Pimco Income fund to big gains by buying mortgage-backed securities after the financial crisis started. Why he likes Hilton bank loans and Gazprom bonds.

    Picking through the rubble of a financial crisis can have its rewards.

    Five years ago, Pimco tapped Dan Ivascyn to run the new Pimco Income Fund, with the aim of providing sustainable dividends, as well as generating additional total return through capital appreciation. The native of Oxford, Mass., had worked in the asset-backed securities group at Bear Stearns prior to joining Pimco in 1998. By March 2007, when the fund (ticker: PONAX) launched on the eve of the global financial meltdown, its parent already had grown wary of mortgage bonds and had begun to cut its holdings of so-called nonagency mortgage-backed securities, or those issued by banks, rather than federal agencies like Fannie Mae or Freddie Mac.

    Despite stumbling out of the gate with a loss of 5.95% in 2008, Pimco Income was able to pick up lots of bargain-priced bonds from desperate sellers and has gone on to achieve stellar annual returns of 18.64%, 19.96% and 5.95% in subsequent years, plus a second best-in-category 10.63% this year to date, according to Morningstar. It's done that with an expense ratio of 0.80%.

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