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Weekly Review: Preferred Stock CEFs - Lagging Fund At A 8.08% Discount And 8.52% Yield

Dec. 07, 2018 3:09 PM ETFLC, FPF, HPF, HPI5 Comments


  • Review of how preferred funds finished the week.
  • Comparison of closed-end funds in the group.
  • Recap of news related to them, if any.
  • This idea was discussed in more depth with members of my private investing community, Trade With Beta. Start your free trial today »


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

Source: Author's Software

Over the past week, there were no important news that could affect the sector's performance.

The Benchmark

The leading benchmark of the preferred stock sector (PFF) finished the week at a new low. The index went down to $35.12 per share, but luckily closed higher in the last trading hours. For a third straight week, the ETF closed at negative territory. Since it reached its high point of $38.08 per share in early July, the fund has dropped with $2.90 per share or 5.26%.

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

On a weekly basis, the fund lost $0.19 per share or 0.53%.

On the other side, the iShares 20+ Year Treasury Bond ETF (TLT) finished the week positive at a price of $115.33 per share. By the end of October, TLT had broken through all its support levels, and in early November, it bottomed at a price of $111.90 per share. Since then, the bond ETF has gained $3.43 per share or 2.7%. On a weekly basis, the index has added $0.19 per share or 0.16%.

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

Treasury yields continue to slide during the past trading week. On Friday, the 10-year treasuries went below 3.00%.

Source: cnbc.com - U.S. 10-Year Treasury

1. Sorted by Z-Score

Source: Cefconnect.com

Today, the Z-scores are a lot higher than our previous review of

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 these kinds 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 LDP 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.

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