How much PIMCO is too much?

[AlexT]

Hi All,

My rollover IRA has 38% PIMIX, 13% PDI, 9% PDO, 4% PFN, and 10% PTY.
The rollover IRA represents is 2/3 of TA.

All CEFs are on external DRIP (to get the 5% PIMCO discount).

I do not foresee needing to use income from this account for the next 5 years. Each year I am converting 10% from the rollover to the Roth (which is 100% in PDI and used for living expenses). My conversion aim is to minimize my federal tax bracket (MFJ) when RMD kicks in. I expect that each new rollover (starting 2027) to Roth will be DRIP-ed.

My overall goal is to increase the size of my IRA.
I am too lazy to change things every month and would like to put things on autopilot as long as I do not need money from the IRA.

PIMIX generates a bit of cash every month and I am not DRIP-ing it.

Q1: is my PIMCO appropriate for my goals
Q2: is it too risky to put 2/3 TA (overall with other accounts) into PIMCO
Q3: what should I DCA with the PIMIX distributions?

Advanced thanks,

 

[Montecfo]

Can't really answer your question as far as what to invest in going forward. But these funds generally have a good deal of exposure to junk, unrated securities, private credit for which there is no real public market or all of the above. Except for PIMIX they also employ leverage and trade at premiums to NAV.

PIMCO has a good track record, it seems like you are allocated to rather similar relatively aggressive strategies That would give me pause. In a credit or liquidity shock these will likely be costly and difficult to exit.

What are your reasons for holding each fund?

Are these holdings in lieu of an equity allocation?

 

[COcheesehead]

I have 15% of my total portfolio in CEFs and of that maybe 10% are Pimco. That’s about as far as I go.

 

[Flyfish1]

Depends on how you are structuring things. All of my market holdings are in income producing investments. I hold multiple positions in a broadly diversified portfolio and PIMCO products are my largest holdings from any company. Yet, they are less than 6% of all my market based holdings.

 

[Montecfo]

I have 15% of my total portfolio in CEFs and of that maybe 10% are Pimco. That’s about as far as I go.

It seems like good "seasoning" but not the whole souffle.

 

[COcheesehead]

It seems like good "seasoning" but not the whole souffle.

I dialed back from where I was a year ago. Trying to be more balanced.

 

[AlexT]

Can't really answer your question as far as what to invest in going forward. But these funds generally have a good deal of exposure to junk, unrated securities, private credit for which there is no real public market or all of the above. Except for PIMIX they also employ leverage and trade at premiums to NAV.

PIMCO has a good track record, it seems like you are allocated to rather similar relatively aggressive strategies That would give me pause. In a credit or liquidity shock these will likely be costly and difficult to exit.

What are your reasons for holding each fund?

Are these holdings in lieu of an equity allocation?

Thank you, @Montecfo The ultimate goal is to eventually convert as many shares as possible to a Roth by the time I need the income. And, yes, there is always the risk of these CEFs cutting their distribution, price erosion and rising interest rates. I am aware of PDI/PDO overlap and am concerned. PDI/PTY is balancing mortgage/corporate debt in the portfolio. The other CEF purchases were based on good entry points and not an overarching and disciplined investment philosophy. The remaining 25% of the rollover IRA is in equities.

 

[keppelbay]

@ AlexT, I suggest that you think first about allocation.
How much fixed income vs equity vs cash?
Do you consider the CEFs as having equity-like risk?

Once you've decided on issues of that sort, you can ask yourself, how much allocation to PIMCO you are comfortable within the 'lower risk' FI sleeve and within the 'higher-risk' CEF sleeve.

For myself, allocation within those categories leans heavily toward PIMCO. Other fixed income managers have tended to disappoint over time. I've tended to stay with PIMCO CEFs, or come back to them when pricing is attractive.

Currently 24% of assets are with PIMIX and 18% of assets are in PIMCO CEFs, mostly PDI. These represent about 2/3 of the assets in each category. These are not target levels, just where things happen to be at the moment. FI and CEF allocations have been as high as 40% each, but are currently lower because cash flow targets are being met at these levels (with a comfortable margin).

 

[dobig]

I have dialed way back as well.

When I started looking at the numbers it became apparent to us that age became a significant factor in income investing. Being in our mid 50's dividend growth is more relevant then current dividend. We're giving up a lot of current income going this route but over time we should easily exceed the income over high yield cefs and other income instruments. We'll also get the added benefit of much higher capital appreciation vs nav erosion.

If we were older, say mid 60's, we would likely shift to a higher percentage of cefs. Especially if we needed the cash flow. Current cefs holdings 6%.

 

[VanWinkle]

I have 15% of my total portfolio in CEFs and of that maybe 10% are Pimco. That’s about as far as I go.

Great advice!!

 

[Flieger]

I have a fair amount of different ETF's, including PIMCO funds. But I am doing that primarily for income I need and primarily until I go on Medicare. Once I start that I will dial way back on the Income part of portfolio.

If I did not "need" the income as you state and have a goal of increasing my accounts, I would be choosing other investments I think.

Flieger

 

[dobig]

Something to take into consideration.

Backtest of SCHD, DGRO and PDI for income. No dividend reinvestment.

You can see how initially PDI (gray) overwhelmingly produces more income. But over time with dividend growth SCHD (blue) has significantly closed the gap. DGRO (green) is catching up but still lags.

Now let's look at capital appreciation. Depending on your needs this may or not be important to you. DGRO which is more growth oriented has the advantage, SCHD lags slightly behind and PDI has lost more than half it's value. This is taking all dividend distributions with no reinvestment.

SCHD (blue)
DGRO (green)
PDI (gray)

For myself cefs have a place in my portfolio as a boost to income but it's going to be a smaller allocation. Max 15% like COcheesehead. I'd rather have dividend etfs that grow their dividend income 250% over a 10 year period like SCHD or 220% for DGRO while giving me more then 10% annual growth excluding dividends

 

[AlexT]

@ AlexT, I suggest that you think first about allocation.
How much fixed income vs equity vs cash?
Do you consider the CEFs as having equity-like risk?

Once you've decided on issues of that sort, you can ask yourself, how much allocation to PIMCO you are comfortable within the 'lower risk' FI sleeve and within the 'higher-risk' CEF sleeve.

For myself, allocation within those categories leans heavily toward PIMCO. Other fixed income managers have tended to disappoint over time. I've tended to stay with PIMCO CEFs, or come back to them when pricing is attractive.

Currently 24% of assets are with PIMIX and 18% of assets are in PIMCO CEFs, mostly PDI. These represent about 2/3 of the assets in each category. These are not target levels, just where things happen to be at the moment. FI and CEF allocations have been as high as 40% each, but are currently lower because cash flow targets are being met at these levels (with a comfortable margin).

Thank you, @keppelbay! I see CEFs, risk-wise, as equities. My FI, in its entirety, representing 28% of TA, is all PIMIX. CEFs are 38% and equities 28% (mostly MO/GOOG), 5% cash. Sounds like I should lighten up on PIMCO. But where to? I have been looking at SCHG/SCHD/BRK.B/etc.

 

[AlexT]

I have a fair amount of different ETF's, including PIMCO funds. But I am doing that primarily for income I need and primarily until I go on Medicare. Once I start that I will dial way back on the Income part of portfolio.

If I did not "need" the income as you state and have a goal of increasing my accounts, I would be choosing other investments I think.

Flieger

Thank you, @Flieger ! Any suggestions to consider?

 

[joejetski]

Thank you, @keppelbay! I see CEFs, risk-wise, as equities. My FI, in its entirety, representing 28% of TA, is all PIMIX. CEFs are 38% and equities 28% (mostly MO/GOOG), 5% cash. Sounds like I should lighten up on PIMCO. But where to? I have been looking at SCHG/SCHD/BRK.B/etc.

I don’t put PIMIX in the same category as the high yield PIMCO CEFs. I have a good chunk of my FI in PIMIX, but I also hold VWEAX (VWEHX for small positions) and have for over 20 years.

 

[AlexT]

Something to take into consideration.

Backtest of SCHD, DGRO and PDI for income. No dividend reinvestment.

You can see how initially PDI (gray) overwhelmingly produces more income. But over time with dividend growth SCHD (blue) has significantly closed the gap. DGRO (green) is catching up but still lags.

View attachment 61435

Now let's look at capital appreciation. Depending on your needs this may or not be important to you. DGRO which is more growth oriented has the advantage, SCHD lags slightly behind and PDI has lost more than half it's value. This is taking all dividend distributions with no reinvestment.

SCHD (blue)
DGRO (green)
PDI (gray)
View attachment 61436


For myself cefs have a place in my portfolio as a boost to income but it's going to be a smaller allocation. Max 15% like COcheesehead. I'd rather have dividend etfs that grow their dividend income 250% over a 10 year period like SCHD or 220% for DGRO while giving me more then 10% annual growth excluding dividends

Thank you, @dobig ! I looked at TR for the past 10 years SCHD/PDI/DGRO on dividendchannel. Their average per year return with reinvested dividends are 12%/8%/13%, respectively. My conclusion then is to consider: a) DCA my PIMIX dividends into SCHD/DGRO, b) convert SCHD/DGRO in kind for future Roth conversions and c) move IRAs MO holdings into SCHD/DGRO.