“Bond King” Goes Treasure Hunting

banker xCan a single man really affect the fate of the entire stock market? Yes, if that man happens to be the head of an investment management firm with nearly $2 trillion in assets. Bill Gross, co-founder and chief investment officer of Pacific Investment Management Company, LLC, better known as PIMCO, turned the company into one of the world’s largest bond investors.

Gross, an award-winning fund manager, is commonly referred to as Wall Street’s “Bond King.” In 2014, he has already spent more than $4 million of his own money on one of Pimco’s many closed-ended funds (CEFs). Unlike open-end funds, CEFs have a fixed number of shares and they can be purchased (and sold) only in the stock market.

I’m going to tell you the name of the fund that has the bond king so excited and why it’s time for investors to start following in his majesty’s footsteps.


According to SEC filings, Gross recently bought 131,391 shares of Pimco Dynamic Income Fund (PDI), a multi-sector taxable fund run by another Pimco manager. This fund has focused mostly on mortgage securities although it is free to “go-anywhere.” When an insider starts buying shares in such huge quantities then that’s a strong sign of how confident he is in that investment.

PDI was born in May, 2012 and currently has over $2 billion in assets, spread over 398 securities. The majority of the fund is invested in asset backed bonds (73%) and corporate bonds (20%).

The fund is up about 14% in the past year and shares are currently trading near $32. Pimco recently announced that the fund will be paying a monthly dividend of 19 cents a share.

Gross often buys Pimco CEFs when he feels the shares are undervalued. Sometimes he buys funds that he manages himself, but not in this case. It’s very possible that he’ll buy even more shares of PDI since he recently freed up some cash by selling part of his shares of Pimco’s California municipal bond fund (PCK).

Gross has gotten some bad press due to an ugly split with his former heir-apparent Mohamed El-Erian, who shared the co-chief investment officer title. Earlier this year the Wall Street Journal even ran a scathing article on Gross’s gruff management style but no one doubts the man’s brilliance. Over the past five years, Pimco CEFs have easily outpaced the stock market, which is extremely impressive considering the strong bull market we’ve experienced.

Not all of the Pimco CEFs have had stellar showings most recently as stocks have generally outpaced them. However, PDI has been the best performer of the bunch during that period. Plus, PIMCO still has one of the best investment house reputations on Wall Street.

PDI is a solid bet going forward but I’m reserving specific buying instructions for my C.H.I.R.P. trading service subscribers.

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