An Ultra-Safe Treasury Fund with a Yield of 7.8%
By: Carla Pasternak
High-Yield Investing, High-Yield International
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
High-Yield Investing

About High-Yield Investing

High-Yield Investing is a monthly investment newsletter that brings you a wealth of information on the market's leading income stocks and funds, as well as a host of relatively unknown investment options that you probably won't find coverage of anywhere else. Many of these securities provide investors with annual dividend yields of 10%, 15%, even 20% or more. The newsletter not only provides subscribers with investing ideas that produce incredibly high dividend yields, but the kicker is that these high-yield investments have also consistently outperformed the major market averages. (Learn More)

About Carla Pasternak

Editor of's High-Yield Investing newsletter since its inception in May 2004, Carla Pasternak draws on a variety of financial backgrounds to make profitable calls on income-generating stocks for her readers.

Carla has been employed in the investment industry for more than two decades. In addition to her work as a writer for several nationally recognized financial publishers, her previous experience includes a position as president of a well-respected investor relations firm. She has also been writing shareholder reports for public companies since 1980.

A highly successful investment analyst, Carla specializes in high-yield, income-paying stocks. In that pursuit, she's always mindful to select companies that not only pay rich dividends, but that also deliver strong long-term capital gains. Furthermore, Carla's experience in writing SEC filings gives her the added insight required for her to truly understand a company's current and future financial health.

On the educational front, Carla holds BA, MA, MBA and Ph.D. degrees. When she's not watching the market, she's teaching business courses at the college level and managing millions of dollars in portfolio assets.

To learn more about Carla Pasternak's premium income investing newsletter -- High-Yield Investing -- please visit this link.

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