Do Funds Belong in Your Income Portfolio?

I love it when I’m asked about stocks that aren’t on my radar. When I look for new income opportunities, I try to look at my stock screeners from different perspectives. I cover a lot of ground, but sometimes I get asked about investments I’m not familiar with. 

This time, I was asked about PIMCO Strategic Income Fund (RCS). I’m generally not a huge fan of funds and could not give any opinions on the spot. I prefer to pick my own stocks.

That does not mean I have a strict no fund rule.

Earlier this month in Yield Shark, we sold our position in Amplify Lithium & Battery Technology ETF (BATT) for a 54.6% gain. Many of the leaders in these industries are foreign companies that pay low or no dividends. Those are my two top reasons for buying funds:

1. To gain exposure to companies that are difficult to buy. Some examples are non-US companies not traded on a US exchange, bonds, or advanced options strategies.

2. Collecting a dividend when the individual companies don’t meet my 3.5% minimum yield requirement.

Just like adding any position to your portfolio, the fund in question must have some sort of purpose for being there.

Here are some things I look at when analyzing any fund.

The “What” and “How”

The name of this fund—Strategic Income Fund—doesn’t give us a very clear idea of its objective. The best place to find that is on a fund’s official web page—here it’s PIMCO.

All of the information I’m going to look at will come from this page.

RCS looks to generate a yield higher than that offered by high-quality, intermediate-term US debt securities (think US Treasuries). It does this by finding attractive issues across all fixed income sectors. This includes corporate debt, government and sovereign debt, and mortgage-related and other asset-backed securities of varying maturities.

The next step is to check the fund’s holdings and see if they align with its goal.

The Fund’s Top Holdings

Some funds hold hundreds of positions where each one accounts for less than one percent of the total portfolio. A fund’s top five or 10 holdings usually give you a good idea of where its investments are concentrated. These typically make up the largest percentage of the fund’s holdings.

RCS’s top five holdings are 23.6% of the portfolio.

1. Uniform Mortgage-Backed Security TBA: This is a group of mortgage-backed securities with a 7% yield and 2056 maturity.

2. PIMCO Short-Term Floating NAV Portfolio III: A PIMCO fund focused on short investment durations and provides liquidity management for PIMCO

3. AmSurg Corp.: A leader in the strategic and operational management of surgery centers. The company does not have public shares.

4. Government National Mortgage Association (Ginnie Mae): Government owned corporation guaranteeing mortgage-backed securities from FHA, VA, and other federal loans.

5. Promotora de Informaciones SA: A Madrid-based media and education conglomerate in the Spanish and Portugese language markets.

Right off the bat, we can see the fund is diversified across types of companies and global locations. It’s a good sign that the fund’s manager is looking for the best fixed income investments no matter where they are hiding.

Some Important Numbers

A fund and its holdings may look good to you, but that doesn’t mean it belongs in your income portfolio. It has to pay an above-average dividend yield. In this case, we know that management is comparing it to treasuries. The yield of the 10-year is currently around 4.1%. RCS pays out $0.04 cents every month for a 7.8% annualized yield at today’s prices. Keep in mind this is down from $0.05 monthly paid in 2020-2024.

We also want to know a fund’s expense ratio—the cut management takes before we get paid—which is also found on the issuer’s website.

This is a higher expense ratio than my preferred 1.5%. You can expect a higher expense ratio for funds with active strategies. We can tell this is an active strategy by the short-term duration of some of its holdings and the number of holdings. I personally don’t think you need an active strategy to beat US Treasuries.

Finally, you want to know the fund’s net asset value, or NAV. This is the total assets of the fund broken down into a per share value. The NAV for RCS is $4.68. The market price of RCS is around $6.10, so you’re paying a 30% premium to its asset value.

Do I think RCS is a bad investment? Not necessarily. Is it one of my top picks for 2026? No. If you’re looking for a monthly payer with a decent yield, I don’t think RSC will disappoint you over the short term. I would, however, look for something without a recent dividend cut. Even better, look for something with a history of raising its dividend.

For more income, now and in the future,

Kelly Green