Published:
March 24, 2008
Managed by PIMCO, the world's biggest bond
manager, PIMCO Real Return D (PRRDX, $11.50) has an ultra-safe "AAA"-rated portfolio of U.S.
Treasuries and government agency bonds. About a quarter of the
$14 billion in assets is in Treasury
Inflation-Protected Securities (TIPS). The balance of the portfolio is in U.S. Treasuries,
government-sponsored mortgage-backed securities, corporate
bonds, and
international bonds.
With
an intermediate-term average duration of about seven years,
the portfolio carries moderate sensitivity to interest
rates. To extract extra yield, the fund manager may buy TIPS
derivatives, which cost considerably less than the bonds
themselves. That leaves more cash to invest in safe, but
higher-yielding, short-term corporate bonds.
Dividend: The fund pays a varying dividend
each month of about $0.04 per share. Over the past 12 months,
regular dividends plus year-end capital gains of $0.375 have
amounted to $0.90 per share. That gives the fund a generous
yield of 7.8% as we go to press.
This fund is sold to retail investors in four ways -- "A"
shares, "B" shares, "C" shares, or "D" shares. Each share class
has a different price structure and charges. We've zeroed in on
the "D" shares as providing the lowest cost and maximum return
potential. A 0.9% management expense fee takes a small bite
out of total returns.
The fund has a dividend reinvestment plan, and for more
information, you can call investor relations at 1-888-877-4626.
The fund requires a minimum initial investment of $5,000.
Performance: Established in April 1998, the fund
has performed in the upper quartile of its category in 1-year and 5-year annual returns. Returns of
+14.8% over the
past year are more than double those of the benchmark Lehman
Brothers Aggregate Bond Index and demonstrate the success of
PRRDX's portfolio strategies.
Outlook: This fund's returns are sensitive to
interest rate changes. Falling interest rates could increase the
value of the bond portfolio and its shares. An unexpected rise
in interest rates could have the opposite effect. The heavy
weighting on inflation-indexed bonds provides protection against
inflation, but the value of these bonds is still affected by
changes in rates.
For example, the fund put in its best year in 2002, when
interest rates were falling, and its worst year in 2006, when
rates were on the rise. Still, given the fund's diverse bond holdings,
the range of trading strategies, and the wealth of management
expertise at PIMCO, we would expect the fund to provide solid
average returns of at least +7% a year over the long-term, in
line with its 5-year average.
Action To Take ---> For
investors with a moderate risk profile, PRRDX should benefit
from today's low interest rate environment and provide a hedge
against inflation risk -- as well as healthy long-term returns.Good investing!
Carla Pasternak
Editor
High-Yield
Investing
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