I’m back with another Portfolio update. It’s just one transaction to detail this time… a move I made a little over a week ago.
It was an investment in a new Portfolio holding, too. One that doesn’t meet my usual investment criteria either. Intrigued?
On top of that, I invested a good chunk of change… more than normal. Mainly, I wanted to avoid having this be my smallest Portfolio position, and I accomplished that.
Regardless, I’ve got another holding in my Portfolio, and it’s helping to generate additional income… a lot of it. I’ll need all the income I can get given that retirement is just around the corner.
Alright, let’s get to the details of my latest Portfolio transaction…
PIMCO Corporate & Income Strategy Fund (PCN)
PCN is a closed-ended fixed income mutual fund launched in October, 2001. It’s domiciled in the United States.
The fund invests in the fixed income markets of the United States. It invests in securities of companies that are diversified across many sectors. These fixed income securities include treasury bonds, corporate notes, U.S. government agency securities, mortgage backed and asset-backed securities.
The multi-sector bond fund has a primary objective of high current income, with a secondary objective of capital preservation and appreciation.
The fund can invest a maximum of 25% of its total assets in non-U.S.-dollar-denominated securities. The fund normally maintains an average portfolio duration between 0 to 8 years.
This is the 3rd closed-end fund (CEF) in my Portfolio, but this one is unique in that it’s a bond fund instead of a stock fund. So, it offers some additional diversification for my Portfolio.
Distributions are made monthly.
With retirement on the docket later in 2025, I’m setting up my Portfolio to generate additional income, as opposed to focusing solely on capital appreciation and dividend growth.
On 6/6/25, I initiated my PCN position by purchasing 400 shares at $12.67/share, for a total of $5,068.00. The fund yielded 10.66% at my purchase price, which is nearly a massive 8 percentage points above (or about 3.8x) my current Portfolio yield of 2.81%.
The purchase added a whopping $540.00 to my annual forward income (or $45/mo.). My first distribution payment from PCN will be the 1st day of July.
Multi-sector bond funds attempt to cover their distributions primarily with the income received from investments, with the capital appreciation of those assets making up any shortfall.
As far as fixed income CEFs go, PCN has a Net Investment Income (NII) Coverage that is very high (currently 108%). NII Coverage is the percentage of a fund’s distribution covered by NII, which is the interest and dividends earned by the fund less expenses. Most fixed income CEFs set their distribution based on NII, with ratios near or above 100% being safer.
PCN doesn’t deploy much leverage at all in order to help magnify investment gains. Its leverage ratio is fairly low for fixed income CEFs at 4%.
Also, Simply Safe Dividends categorizes PCN to have ‘Low’ interest rate sensitivity. This means a 1% rise in rates would result in just a 2% to 4% decline in PCN’s value.
Currently, PCN has a yield that is essentially 1 percentage point higher than its 5-year average of 9.80%. The fund also trades at an 8% premium to its NAV, however, this premium actually is a large discount relative to the 17% premium it usually has to its NAV. These factors suggest that PCN may currently be undervalued.
PCN has an outstanding 10-year total return record for a fixed income CEF, returning 6.2% per year. This easily outpaces the long-term returns of other fixed income CEFs. However, more recent performance is not as exemplary, though still good.
This better performance hasn’t come without additional volatility though. The monthly returns of PCN over the past 10 years have been volatile compared to other fixed income CEFs. PCN has one of the highest volatility percentages for returns you’ll find for an fixed income CEF at 5.2%. Volatility is the standard deviation of a fund’s monthly returns over the given time period.
PCN’s expense ratio of 0.87% is low for a fixed income CEF. This is lower than 85% of fixed income CEFs.
The fund has been assigned a ‘Borderline Safe’ dividend safety score (60 out of 99) from Simply Safe Dividends.
PCN is currently my 8th smallest Portfolio holding. It’s smaller than my Walt Disney Co. (DIS) position, but bigger than my VICI Properties (VICI) position.
At this point, for new Portfolio holdings, I normally take a quick look at the dividend growth history dating back to 2000.
However, there’s no point in doing that with this CEF, as PCN hasn’t raised its distribution in over a decade (since 2012). PCN has provided a $0.1125/share regular distribution each month for more than a dozen years. However, there have been several special dividends paid out over that time frame.
Summary
Thus far in June, I’ve only made one Portfolio transaction, and it was to add a 3rd CEF. It wasn’t an equity CEF though, but rather a multi-sector bond CEF.
Compared to my usual trades, I traded capital appreciation and income growth potential for higher income right now. This income becomes critical for me as I plan on using my Portfolio income for living expenses in the coming years.
Since PCN is primarily made up of various fixed income investments, it doesn’t quite fit into my stock Portfolio. I’ll try figuring out how I’m going to categorize it in my monthly reports over the next couple of weeks.
I invested a total of $5,068 in PCN. My annual forward income jumped by a significant $540 due to the fund’s yield which exceeds 10.6%.
The addition of PCN brought the number of my Portfolio holdings to an even 60. My Portfolio holdings are now comprised of 57 stocks and 3 CEFs.
Do you already use your portfolio income for living expenses? Do CEFs make up any part of your portfolio? I look forward to your comments!