In short: Being added — the income response to the hike. "We've even been adding to PDO, PDI, and PAX, the Pimco funds which now trade at discounts to their NAV, which they haven't traded in many months. And so I've been adding to PAX, PDO. They trade at like 5% discounts to NAV and they pay about 13% monthly dividends. So that is a low volatility way to take advantage of this interest hike, and the average duration on those bond funds is also lower than TLT, but they do have a little bit of leverage." The trade-off stated: "you can earn basically twice what you can earn in munis, while munis are a lot safer." (The report mislabels PDO as "PIMCO Dynamic Credit and Mortgage Income Fund (PCI / PDO)" — PDO is Dynamic Income Opportunities.)
A closed-end fund is an investment fund whose shares trade on the stock exchange like a company's. Because the number of shares is fixed, the share price can drift above or below the value of the bonds the fund actually owns (its "net asset value"). PDO, run by the bond manager PIMCO, holds a mix of credit — corporate bonds, mortgage securities and loans — and pays out a large monthly distribution.
Singh has been buying it because rising rates have pushed its shares to about a 5% discount to the value of what it owns — it had traded at a premium for months — while it pays roughly 13% a year. Buying at a discount means you get a dollar of bonds for about 95 cents. The trade-offs: the fund borrows to boost its income, which makes it riskier than owning bonds directly, and it is less safe than municipal bonds. He presents it as a way for stock-heavy investors to earn a high income without taking stock-market risk.
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