Putnam PPT

[RustyShackleford]

Seeking opinions on Putnam's PPT closed-end fixed-income fund.

 

[brewer12345]

I own a small amount of it and have owned some in the past. It trades at a generous discount and has a long track record. My recollection is that there is a provision in the prospectus that requires the fund to offer up for shareholder vote the option to convert to an open ended fund and instantaneously get rid of the discount, but only if the fund is at a certain average discount to NAV for a certain amount of time.

The fund does a certain amount of TBA stuff and uses derivatives, but does not appear to employ leverage as such.

 

[RustyShackleford]

Yeah, I noticed the discount of 10% or so. What does that mean in practical terms ? Seems to me that it means it's a good deal - that the share price is more likely to go up than down.

Morningstar says: is relatively unique in that it uses its derivative positioning to hedge the portfolio's duration down to zero. I don't quite understand what this means, but does it imply that it's value should be immune to interest-rate changes ?

And: The fund seeks to generate high levels of income by taking on credit risk, leaving 41% of assets rated below investment grade.

Yep, the price paid for higher yields.

 

[brewer12345]

The discount simply means that the shares trade at 10% less than the value of all the assets in the fund. If you sold it all and distributed it to the shareholders tomorrow you would deliver an instant 10% gain.

In theory, the hedges should mean the fund is indifferent to interest rate changes. But this sort of hedging is complex, so I think a safe statement would be more along the lines of "the fund should not experience significant gains or losses due to interest rate movements."

I am not wild about the high yield market (my take in detail is here: Life, Investments & Everything: High Yield Market Looking Overvalued And Underprotected ), so PPT will remain a small position for me. I do think it is attractive as a "single or double" type opportunity, just not looking to make a big bet on it.

 

[RustyShackleford]

If you sold it all and distributed it to the shareholders tomorrow you would deliver an instant 10% gain.

This suggests to me that decreases in share price aren't that likely, which makes me feel it's a good investment.

I do think it is attractive as a "single or double" type opportunity, just not looking to make a big bet on it.

What do you mean by that expression ? Yeah, I would put at most 10% of my fixed-income allocation into it.

Thanks, Brewer.

 

[brewer12345]

CEFs at a discount are tricky. For dirty bottom fishers like me, a big discount can be enticing. However, if the underlying asset class takes a beating the fund will get thrashed, too.

A single or a double means you might get a respectable return, but it will never be a home run. Its a fixed income fund, so its not going to be a 3 bagger.

 

[gcgang]

CEF Connect - Brought to you by Nuveen Closed-End Funds

Above is a link to a great site on closed end funds.

More important than the fact a fund sells at a 10% discount like PPT, is what is the current discount in relation to what the discount/premium has historically been. For example, if the fund is at a 10% discount now, but over the last 5 years its been between a 5-20% discount, you may conclude its not a raging bargain at 10%.

You can use this tool to research that as well as lots of other data on the fund.

 

[sailfish]

I had PPT a few years ago. Since 2010 the annual dividend payout has been going down and when it decreases the price goes down with it. I sold mine last time the monthly payment decreased. These high income CEF's can be volatile sometimes. IMO,