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Weekly Trading Opportunity: Preferred Stock CEFs


  • Introduction of the funds that grabbed our attention.
  • Statistical comparison between them.
  • Trade proposal for those interested.

Note: This article was originally published for our subscribers on 4/3/2018 and some figures and charts may not be entirely up to date.


After we have already gone through all preferred stock CEFs in our weekly review, we wanted to find ones which could present us with a trade opportunity. In this article we are going to show you our picks and build a short thesis as to why they might be of interest to us.

Statistical Comparison

Trade Proposal #1

Flah&Crum Pref Income Opps (NYSE:PFO) will be our first choice. This fund grabbed my attention because it is statistically undervalued, potentially undervalued - trading far below its net asset value, and it delivered to its holders one of the better returns on NAV for the past five years. The characteristics of this CEF make it a good ''Buy'' because it has everything that we could ask for:

Source: CEFConnect.com

Source: CEFConnect.com

Source: CEFConnect.com

This chart allows us to track how the Net Asset Value and Market Price performed over the last five years. Now, we can clearly see that the fund has had the tendency to trade at a Premium, rather than a Discount. If we judge this by the picture painted by the aforementioned, it seems like PFO trading at a Discount has been a short-lived phenomena most of the time. Perhaps this time is different, or are we going to see history repeat itself?

Let us proceed with another aspect which deserves our attention, namely the Credit Rating of the underlying portfolio:

Source: CEFConnect.com

As the data shows, this fund has 59.40% exposure to BBB-rated products and this means that we probably should have nothing to worry about in this respect. On top of that, the stocks in the portfolio are only from issuers located in the United States. So far

Trade With Beta

At 'Trade With Beta' we also pay close attention to Closed-end Funds and are always keeping an eye on them for directional and arbitrage opportunities created by market price deviations. As you can guess, timing is crucial in these kind of trades, therefore you are welcome to join us for early access and the discussions accompanying this kind of trades.

This article was written by

Arbitrage Trader profile picture
Leader of Trade With Beta
Income arbitrage ideas along with managed portfolios and pair trades

Day trader whose strategy is based on arbitrages in preferred stocks and closed-end funds. I have been trading the markets since I started my education in Finance. My professional trading career started right before the big financial crisis of 2008-2009 and I clearly understand what are the risks the average investor faces. Being a very competitive trader I have always worked hard on improving my research and knowledge. All my bets are heavily leveraged(up to 25 times) so there is very little room for mistakes. Through the years my approach has been constantly changing. I started as a pure day trader. Later I added pair trades. At the moment most of my profits come from leveraging my fixed income picks. I find myself somewhere in between a trader and an investor. I am always invested in the markets but constantly replace my normally valued constituents with undervalued ones. This approach is similar to rebalancing your portfolio and I just do this any time there is some better value in the markets. I separate my trading results from my trading/investment results. I target 40% ROE on my investment account and since inception in 2015, I am very close to this target.

My main activity is running a group of traders. Currently, I have around 40 traders on my team. We share our research and make sure not to miss anything. If there is something going on in the markets it is impossible not to participate somehow. Some of my traders are involved in writing the articles in SA. As such Ilia Iliev is writing all fixed-income IPO articles. This is part of their development as successful traders.

My thoughts about the market in general:

*If it is on the exchange it is overvalued and our job is to find the least overvalued.

*Never trust gurus - they are clueless.

*Work hard - this is the only way to convince yourself you deserve success.

*If you take the risk it is you who has to do the research.

*High yield is always too expensive.

We are running a service here on SA. It is a great community with very knowledgable people inside. Even though we are not in the spotlight as often as we would like to our articles' results are among the strongest on SA. You can always contact me to share some of our articles and best picks so far.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in PFO over 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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