Last week, BSG&L Growth added to their Pimco High Income Fund (PHK) position, which is the top holding in their Growth Plus Income Covestor model. The main objective for the PHK fund is to create a current income and the secondary objective is to appreciate capital. The fund generally invests 80 percent or more of its assets in bonds that are rated below investment grade—but no more than 10 percent of its assets in funds rated CCC/Caa or lower at the time of purchase.
In October, when the Federal Reserve announced its QE2 measures, many became concerned about the possible reduction in bond rates that could occur once the second round of quantitative easing measures actually took place. But shares of the PHK fund, which would be adversely affected by a reduction in bond rates, didn’t fall significantly until mid-November when the Fed actually started its second round of easing. PHK dropped from a closing price of $13.24 on November 12th to $12.22 on November 16th. PHK eventually recovered, rising to $13.26 on December 7th, but then fell again on December 14th, this time to $11.99, after the second round of purchases for QE2 were announced. These drops are especially interesting in light of the fact that treasury and bond yields have shown evidence of increasing since QE2 was announced.
