For those of you unfamiliar with this series of articles, they're basically an approximate five-year profit and loss review of a number of Exchange-Traded Funds (ETFs) and Closed-End Funds (CEFs) that primarily invest in and hopefully profit from dividends earned from their investments in preferred securities, which they then distribute to shareholders. This link will provide you the information necessary to fully appreciate and understand the following article, the differences inherent in CEFs and ETFs, and the remaining articles of this series. It will also serve to eliminate lots of reading redundancy for my regular readers.
This report concerns John Hancock Preferred Income Fund (NYSE:HPI), hence the following description:
As is customary with CEF's, management fees total 1.14%, plus unnamed expenses of approximately 0.09%, and interest costs of leverage, .46%, all totaling 1.68%. Transaction costs include commissions when securities are bought or sold, and any applicable taxes if held in a taxable account. The more active the trading account, the higher these fees. From my research thus far, this appears to be standard operating procedure for funds such as this.
Its effective leverage is just under 34.11%, which although a tad high, appears to be within the bounds of such leveraged funds. The inception date of this fund was 8/27/02, at which time its NAV was $23.88 and its inception price was $25.00/share. As I write its share price is $22.99 and its NAV $22.90. Which translates to a negligible premium were you to buy in at $22.99. However, over this past year, it has traded at an average discount of 5.19%.
From the following list of its top 10 holdings, it's apparent that this fund primarily invests in the preferreds of financials and utilities, with a smattering of telecoms, energy, industrials, and consumer goods.
Now for that five-year performance chart, even though it IPO'd on 8/27/02:
It displays HPI's performance over the past five years. Although volatile, this fund has performed nicely during this time, appreciating in value from $20.02 on 7/25/11 to its current $23.11, a gain of $3.09. However, from inception until the present, this fund has decreased in value from $25.00 to its current price of $23.11, a $1.89 decrease in value. Although many of my followers think it's fair and most relevant to only review the past five years, others believe otherwise and want me to cite its performance from inception. Consequently, I've decided to divide this baby and give each of you half. However, I'm only going to work the numbers for the past five years because I agree that the past five-year span is most relevant, and I ran out of fingers and toes counting backwards to inception.
Yet, as I have mentioned before, even during these past five years, your entry point pricing make a great deal of difference in determining how well this fund performed for you. Had you bought in at $24.11 on 5/6/13, you'd certainly view this fund differently had you bought in on 12/9/13 when you could have purchased shares at the low price of $17.40.
HPI has distributed $8.40* for each share invested at an approximate price of $25.00 on 7/25/11.
*I got the dividend distribution figures from DividendInvestor.com.
- 8.4/25.00 = 33.60% yield over 5 years.
- 33.60/5 = 6.72% yield per year.
Therefore, if my math is correct, the investor would have profited by a yearly dividend yield of 6.72% over the past five years. However, higher since the price over the past five years appreciated by $3.09:
- 8.40 + 3.09 = 11.49/25.00 = 45.96% over 5 years
- 45.96/5 = 9.19% per year yield.
A nice profit over the past 5 years; however, utilizing our DRIP calculator, a $10,000 investment over this time would now be worth $15,907.01 or an 9.72% annually compounded gain, a tad more than the unDRIPed gain, which leads me to believe that share purchases were made under neutral conditions. Considering its amount of leverage, 34.11%, this fund entails an increased amount of leverage risk, consequently, investors must decide whether the reward is worth the risk. The decision to invest in this fund should be taken with this knowledge and according to the individual investor's tolerance for risk.
For those of you interested in this fund, notice that at this price of $23.11, you will be buying it at a negligible premium. Furthermore, my research has shown that this fund normally trades at a discount, averaging over the past 52 weeks at -5.19%. Consequently, strictly from timing standpoint, I would not invest in this fund at this moment because it's very likely, with patience, it could be bought at a nice discount. Past is prologue.
The following is the list of funds I have and will investigate to give you a clear picture how each has performed over the past five years. Initially, I had decided to judge each over the entire life of the fund, but was dissuaded by a number of followers who advised that the results would be unfairly skewed by the recessionary contraction of 2008-9. Here's that list of funds, which has grown considerably as a result of additions you requested: iShares U.S. Preferred Stock (PFF), PowerShares Preferred Portfolio ETF (PGX), Global X SuperIncome Preferred (SPPF), PowerShares Financial Preferred Portfolio (PGF), VanEck Vectors Preferred Securities ex Financials (PFXF), SPDR Wells Fargo Preferred Stock ETF (PSK), PowerShares Variable Rate Preferred Portfolio (VRP), iShares International Preferred Stock ETF (IPFF), John Hancock Preferred Income Fund II (NYSE:HPF), First Trust Preferred Securities and Income ETF (NYSEARCA:FPE), Flaherty & Crumrine/Claymore Total Return Fund (FLC), Flaherty & Crumrine/Claymore Preferred Securities Income Fund (FFC), Flaherty & Crumrine Dynamic Preferred and Income Fund, Inc. (DFP) and Flaherty & Crumrine Preferred Income Opportunity Fund (PFO), John Hancock Preferred Income Fund III , Nuveen Preferred Income Opportunities Fund (NYSE:JPC), John Hancock Preferred Income Fund (NYSE:HPI), Clough Global Opportunities Fund (GLO), First Trust Strategic High Income Fund II (FHY), First Trust High Income Long/Short Fund (FSD), Prudential Global Short Duration High Yield Fund (GHY), ProShares UltraShort S&P 500 (SDS), First Trust Intermediate Duration Preferred & Income Fund (NYSE:FPF), Cohen & Steers Select Preferred and Income Fund, Inc. (NYSE:PSF). Virtus Global Multi-Sector Income Fund (NYSE:VGI), DNP Select Income Fund (NYSE:DNP), John Hancock Premium Dividend Fund (NYSE:PDT), Cohen & Steers Infrastructure Fund (NYSE:UTF), and Flaherty & Crumrine Preferred Income Fund (NYSE:PFD).
Below is a screenshot taken from my IB platform I populated to keep you apprised of the order of my reviews, and as a bonus the funds' closing prices as I write.
Notice, the 2015 dividends are placed just to the right of the fund symbols. To the right of that are the trade prices at the moment 7/21/16. Of further interest, at the far right of the screen are the prices of the 13-week highs and lows of each fund.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.