Tuesday, August 21, 2012

Lemon of the Week: PIMCO High Income

Would you be interested in buying a closed end mutual fund that traded at a 70%+ premium to net asset value even if it yielding 10%? I know I wouldn't. But investors in the closed end fund PIMCO High Income (PHK) are doing just that to buy a leveraged junk bond fund. What could go wrong here? The fund is only 30% leveraged to go with its 70% premium, along with an expense ratio of 1.16%. Just imagine what will happen to investors should the premium shrink or its junk bond portfolio perform poorly.

The first mission of investors is to manage their risk. This fund seems off the charts risky to me and won't find a place in portfolio. I come from the investing should be like watching paint dry or grow school of money management. Roller coaster rides are not for me.

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