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Weekly Review: Preferred Stock CEFs


  • Review of how preferred funds finished the week.
  • Comparison of closed-end funds in the group.
  • Recap of news related to them, if there are any.


Over the last few months, most of you have noticed our increased activity in Closed-End Funds, as the inflow of volatility finally shook them up and created various arbitrage, and directional, opportunities for active traders such as us.

Now that these products have our attention, we are continuously monitoring most funds by sector and will reinstate our Weekly Review, publishing a recap of the groups of interest.

The News

There was no news relevant to the constituents of this group over the last week.

The Sector

The leading benchmark for the sector - iShares U.S. Preferred Stock (PFF) - has seen better days:

Source: Barchart.com - PFF Daily Chart (6 months)

This week was colored in red for the PFF. We can all see the red bars from Monday and Tuesday. On the last day of the trading session, the index made an attempt to break through to positive territory but without success. This can probably be attributed to the slight bounce observed below in the 20+ year Treasuries:

Source: Barchart.com - TLT Daily Chart (6 months)

It is above our pay grade to determine where the TLT is headed and whether this small upswing is going to last.

Anyway, let us proceed with the CEFs invested in these products and see if we can find something worth our attention.

1. Sorted by Z-Score:

Source: CEFConnect.com

Above we can monitor the statistical 'evaluation' of the different preferred funds. At first sight, we can notice that there are a lot of undervalued funds from a statistical perspective.

First Trust Intermediate Duration Preferred & Income Fund (FPF) has the lead this week with a negative Z-Score of -2.10. We can also notice that it is trading at a big discount. These two criteria combined together give us the first ''

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 kinds 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 FLC 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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