PIMCO High Income Fund (PHK)

I love the variety of foods available to us today. Growing up in Fort Worth, Texas, I was always a fan of Tex-mex and confess I can't get enough of green chile now that I live in New Mexico. Indian food is a real treat; there is nothing like ChickenTikka Makhani! I enjoy classic American fare, fried chicken, hamburgers, steak, barbeque, and so on. But if given a choice when going out, I'm likely to choose something more spicy.

Closed-end funds are definitely more spicy than your average pooled investment. When investors hear mutual fund, they almost always think of open-end funds, which is natural since they are more common. Open-end funds just keep growing the size of the fund with new deposits and accounts. Because of that, the value of the fund is always exactly the combined value of all the fund's investments. Closed-end funds don't work that way. They invest a set amount of money and don't issue new shares. So when you want to buy shares in a closed-end fund, you are buying shares from someone else like you who is selling those shares (unless you are buying into the initial offering of shares, which I don't recommend).

PIMCO is one of the giants in the bond world. They have some of the most sophisticated research and data analysis of any fund company in the world when it comes to bonds. They offer both open-end and closed-end funds. PIMCO High Income is a closed-end fund that invests in a variety of bonds, investment grade all the way to junk bonds (junk bonds are bonds from issuers with a low credit rating).

Buying PHK may as well be like buying stocks instead of bonds. If you are going to buy this fund and be a long-term investor, treating this like an Oak Portfolio, then you've got to be ready for some serious volatility. From its peak in 2007 to the low point in November 2008, this fund lost almost 70% of its value! However, it had fully recovered just one year later, in November 2009.

PHK only began in 2003, but if you were to have reinvested your dividends you would now have a total return of over 265%. As it stands today, it pays a dividend of almost 12% per year.

At times, this fund has gotten very much out of sync with the value of its underlying holdings, so when you buy a fund like this, you must check for how much of a premium or discount exists (www.morningstar.com). If you wanted to buy this fund, this would be a good one to pick up using a limit order that sets the price at a level close to its average discount over the last 6 months to 1 year.

Remember to consider the risk! Many investors fail to achieve good returns because they have not appreciated the risks. You must be able to ride a roller coaster to invest in this fund.