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Increasing allocation to PIMCO emerging local bond fund [ClearOnMoney]
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Increasing allocation to PIMCO emerging local bond fund

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Investment

Increasing allocation to PIMCO emerging local bond fund

11 Jan 2012 by Jim Fickett.

Yesterday I increased my allocation to the PIMCO emerging local bond fund (PELAX) from 2% of the portfolio to 3%. I will probably eventually bring it up to 5%, and will make it part of my permanent portfolio. I originally made the case for PELAX in Mar 2010 (Purchasing two PIMCO bond funds); the situation has not changed significantly.

My primary interest in this fund is a currency hedge that pays a decent return. I am pessimistic about the value of the dollar in the long run; there is no clear alternative; and this is one good way to diversify. PELAX is currently yielding 4.85%.

The management of this fund is rather expensive. There is a 3.75% front load sales charge, and the annual management fee is 1.25%. Certainly this is not a fund you want to trade in and out of. But for a long term holding I think the fees are not unreasonable – there is certainly no way I can stay on top of the politics, economy, and broad credit rating information in a dozen countries, and I am glad to pay PIMCO to do that for me.

I expect PELAX to be volatile – in particular, Europe is still headed for crisis, and money may head for dollars in the short run. But, in the long run, I think it will hold its value, as European, Japanese, and American currencies lose value. And now is probably a good time to buy. I added to my position because the fund price ($10.14) is currently towards the low end of its long-term range (leaving out the crisis, roughly $9.50 to $11.30).