By Michael Foster
Today IaEURtmm going to show you a quick trade you can repeat over and over for an 8% gain in just over 2 months (or 40% annualized!).
How do I know?
A Fast, Easy Gain
So how was this win so easy to call the last time around, and how can we ride PGP and other funds to the sameaEUR"and even biggeraEUR"gains in the future?
LetaEURtms start at the beginning.
Inside a 40% Annualized Gain
PGP is one of PIMCOaEURtms most popular closed-end funds (CEFs) , which is saying a lot, since the company is the most popular CEF manager out there. Where most CEFs trade at a discount to their net asset value (NAV, or the value of their underlying portfolios), PIMCOaEURtms funds almost always trade at a premium.
And those premiums can get really high, like the totally absurd 100% markup PGP attracted in 2016:
PGP Sets a CEF Price Record
This ridiculous premium was a record for PGP: while this fund has historically traded at a high premium, it never went this high. And itaEURtms never been that high since.
This, by the way, points to a mistake aEURoefirst-levelaEUR CEF investors make all the time: theyaEURtmll latch onto a fund, bid it up to the breaking point, then hold on and take a big hit when the premium collapses.
That 8.2% return we got from June to August? ItaEURtms mostly disappeared sinceaEUR"if you didnaEURtmt sell when I urged you to, youaEURtmd be facing nearly 8% in capital losses:
A Quick Win Evaporates
But luckily we were tipped off to this loss ahead of time by the very same indicator we used to buy in the first place: the premium to NAV.
Over a long time period, individual CEFs tend to follow a predictable pattern unique to that particular fund. For PGP, itaEURtms obvious. Look at the premium-to-NAV trend in the last 5 years:
A Predictable Pattern
ThereaEURtms a clear oscillation from a very high premium to a lower one and back again.
Crucially, thereaEURtms a proportional relationship between the percentage loss in the premium from peak to trough that determines how high the premium will go when it bounces higher the next time.
In the case of PGP, you just have to add in one more element you canaEURtmt see on the chart above to make this crystal clear: average returns in the junk-bond market, to which the fundaEURtms portfolio is most closely linked.
For instance, in late 2015, the fund saw a relatively moderate decline in its 80%-ish premium to NAV, to around 30%, when the junk-bond market was in a free-fall because of the Federal ReserveaEURtms first interest-rate hike. Investors (incorrectly) saw this as resilience in demand for PGP in 2016, causing the premium to soar to its absurd 100%+ level.
Conversely, when that massive premium collapsed in early 2017, even when junk bonds were doing well, the new premium PGP could command by mid-2017 was its lowest peak premium in 5 years.
When to Move on PGP Again
So is now the time to buy?
The answer is no, but it may be soon.
Since PGPaEURtms peak premium to NAV was so low last time, despite a low but still positive return for junk bonds, the market isnaEURtmt showing enough confidence in PGP to ensure that the trough of this pricing cycle is higher than the last one. And that means we need to wait until PGPaEURtms premium to NAV widens to around 25% before considering a move into it.
If we continue to track PGP, we can find more opportunities to buy when its premium has reached its lowest point, then hold for a few months and cash out with a 40% annualized return in a matter of weeks.
Identifying this pattern, both here and in other CEFs (something I do for you in my CEF Insider service ), is key to locking in both fast upside and a secure 7%+ income stream from these funds over the long haul.
Finally, to show you just how important timing is with a fund like PGP, if youaEURtmd bought it 5 years ago, youaEURtmd have a measly 6.7% total return for the whole 5-year holding period .
A Dud of an Investment
Imagine getting a lower return over 5 years than we got in just over 2 months with the same fund!
In markets, as in life, timing is crucial.
Urgent: These 4 Funds Are Ready to Skyrocket 27% (donaEURtmt miss out)
While now isnaEURtmt (yet) the time to make our next pivot into PGP, donaEURtmt worry. IaEURtmve got 4 more CEFs trading at huge discounts to NAV waiting for you here .
These discounts are so big that that these 4 funds are aEURoelocked inaEUR for fast aEURoesnapbackaEUR price gains of 20% and more as their bizarre markdowns soar back to normal levelsaEUR"which they simply must do (itaEURtms the aEURoelaw of gravityaEUR for these off-the-radar funds).
That means thereaEURtms zero legwork for you to do on these 4 funds. IaEURtmve done it all for you!
And IaEURtmve come to one unavoidable conclusion: BUY NOW.
Because hereaEURtms something else you should know about these 4 fundsaEURtm ludicrous markdowns: they give us crucial downside protection, because even if the market takes a header tomorrow, these 4 CEFs are already heavily discounted, so theyaEURtmll simply trade flat!
And weaEURtmll still collect their massive dividends (which IaEURtmll tell you about now).
Huge Cash Dividends Bump Your Gain to 27%
As I write, these 4 funds pay an impressiveaEUR"and SAFEaEUR" 7.1% dividend yield, on average, with the highest of the bunch hitting 8%.
Even better, all 4 of these cash machines (which, by the way, weaEURtmll be holding for years, not months) pay dividends monthly, so your cash stream will line up with your monthly bills. Or you can reinvest your dividends faster, goosing your gainsaEUR"and income streamaEUR"as you do!
Add it all up and youaEURtmre looking at a 27%+ total return in the next 12 months here, with a nice chunk of those gains headed your way in safe CASH.
These 4 CEFs are aEURoemust havesaEUR for any retirement portfolio, and theyaEURtmre only a click away! Simply click here and IaEURtmll reveal all 4 of them, including their names, ticker symbols, buy-under prices and everything you need to know before you buy !
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.