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Strategies & Market Trends : Value Investing

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To: Debt Free who wrote (30196)3/1/2008 10:39:13 AM
From: Paul Senior   of 71636
I've had Pimco's FRA and FRB upon Bill Gross's recommendations in Barron's. Lost money on both.

Holding now a decent-size position in similar PFN. Losing money on this one as well.

The penalty I guess for me for chasing yields/seeking safety/making wrong decisions.

These closed-end funds invest in floating-rate debt instruments.
The funds are diversified in their debt holdings, and the debt resets quickly. The idea is that a fund holder doesn't take on much default risk with the underlying securities. When general rates rise, the interest on the cef's debt holdings increase, and eventually the dividend paid to stockholders should too. That's how it works as I understand it. (And of course when interest rates come down, it goes the other way.)

Like many cef's, they use some leverage. That's bit them a bit with the recent failed auction of their Auction-Rate Preferred Shares (not significantly or substantially, Pimco(Alllianz Global) says).
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