ETF Talk: Sow Your Seeds for a New Harvest with This Fund

Seasons don’t fear the reaper
Nor do the wind, the sun or the rain
We can be like they are
Come on, baby (don’t fear the reaper)

–Blue Oyster Cult, “(Don’t Fear) The Reaper”

The year is half over. As we look forward to reaping our seasonal food harvests and to cooler weather in the coming months, we are also looking for cooler inflation to sow the seeds for reaping of another sort.

I am, of course, referring to investing in long-term bonds. While the bond market has suffered notably over the past few years, a renewed optimism has emerged this year with a budding positive outlook.

With near certainty of the first Federal Reserve rate cut taking place in September since the last one in March 2020, the very likely possibility of a second rate cut in December and yields trending higher, long-term bonds are looking like an attractive way to add stability to a portfolio without giving up returns.

So, if you are looking for fertile loam in which to plant your future harvest, look no further than this fund: PIMCO Long-Term Credit Bond (NASDAQ: PTCIX).

PTCIX invests in long-duration, investment-grade corporate and sovereign bonds, with at least 80% of its assets in a diversified portfolio of fixed-income instruments of varying maturities and up to 20% of its assets in high-yield securities, or junk bonds. The fund includes bonds, debt securities and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities and offers exposure to emerging-market countries.

The fund allocates heavily to corporate bonds, which outperformed Treasuries in the first half of the year. This is important to note as corporate bonds have remained attractive even in a suffering bond market due to the characteristic lower risk and higher yield, bolstered by strong corporate balance sheets.

PTCIX has $3.36 billion in net assets and an annual expense ratio of 0.99%, which is average compared to funds in the same category. PTCIX offers a dividend yield of 4.86%, paid monthly. Its last ex-dividend date was June 28, 2024.

As of today, the fund is up 0.86% in the last month, down 0.96% over the last three months and down 1.86% for the year to date.

Chart Courtesy of StockCharts.com.

As you can see from the chart, PTCIX shot up in late 2023 and has maintained this upswing throughout the first half of 2024. As we head into the second half of the year and a high likelihood of Fed rate cuts, there is an expectation that bonds will become favorable as investors will be keen to lock in yields.

Now, as with the sowing of seeds, investing is about the future. Bonds can be like a staple crop, a strong root stabilizing the field that is your portfolio in uncertain political and economic weather. Without the gift of perpetual prescience, we must choose our seeds — or, in this case, our long-term bond funds — wisely.

Be aware, however, that long-term bonds are susceptible to credit risk and short-term price swings when interest rates rise and fall. Investors should always do their due diligence before adding any stock, fund or ETF to their portfolio.

As always, I’m happy to answer any of your questions about ETFs, so do not hesitate to email me. You may see your question answered in a future ETF Talk.