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A Deeper Dive Into The Flaherty & Crumrine Funds


  • These preferreds are largely the same in terms of portfolio composition with very similar top 10 holdings and sector breakdown.
  • Flaherty & Crumrine offer best-in-breed preferred stock exposure.
  • They occupy the top five spots in terms of total return NAV for 1-, 3-, and 5-year performance.
  • FFC, FLC is slightly cheap with PFO, DFP and PFD slightly expensive.
  • Looking for a helping hand in the market? Members of Yield Hunting: Alt Inc Opps get exclusive ideas and guidance to navigate any climate. Get started today »

(This report was published to members of Yield Hunting on May 21. All data is from that date unless otherwise stated.)

The preferred space is looking more compelling in the last week having gone from a sector z-score above 1 to a z-score nearing -1. In this report, we want to analyze the Flaherty and Crumrine Preferred Stock Funds.

Flaherty & Crumrine ("F&C") is a niche sub-advisor that specializes in the preferred stock and related securities sector. They have been focusing on preferred security portfolios for institutional clients and funds since their inception in 1983.

They manage five closed-end funds and one open-end mutual fund. We list the six public investment vehicles below.

  • Destra Flaherty & Crumrine Preferred and Income (MUTF:DPIAX)
  • F&C Dynamic Preferred & Income (DFP)
  • F&C Preferred Income (NYSE:PFD)
  • F&C Preferred Income Opp (NYSE:PFO)
  • F&C Preferred Securities (NYSE:FFC)
  • F&C Total Return (FLC)

Let's look at an overview of the funds.

The funds are largely correlated and have a lot of the same top 10 holdings. This is why it doesn't make sense to hold multiple funds for diversification purposes. The chart below shows the total return NAV since the inception of the last fund. The dispersion between the best and the worst fund is 8% cumulative over the 6.5 year time frame.


Let's look at performance across the funds. Three-year NAV returns are very close, as one would expect given the highly redundant portfolios. But the price returns can be quite variable.

The open-end mutual fund lags in performance over most time periods as expected without any leverage. These funds have been able to borrow at 1.67% currently and invest in both retail and institutional preferreds yielding between 5% and 7%-plus earning that spread. Even during the "high" rates of late 2018, the funds' leverage costs only reached 3.25%-3.50%. While all rates have

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This article was written by

Alpha Gen Capital profile picture

Alpha Gen Capital is a former financial advisor and his analysis is meant to provide a relatively safer income stream with CEFs and mutual funds. He has been writing about investing on Seeking Alpha for the past decade and he aims to help investors better understand how to properly construct a portfolio.

Alpha Gen Capital leads the investing group Yield Hunting: Alt Inc Opps, where along with his team of analysts, he focuses on closed-end funds and getting yield from bonds to complement dividend portfolios. The service is dedicated to income investors who are searching for yield without the high risk of the equity market. Additionally, they provide 4 actively managed portfolios. Learn more.

Analyst’s Disclosure: I am/we are long FLC. 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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Comments (31)

Pablo profile picture
I used to hold PFO (and PFD) many many moons ago. Now just FLC (I mainly buy individual preferreds (20+% of my entire portfolio)), - FLC wanted to keep winning, so I let it run. I bought like a mad man during the man made crash. One of the few preferred funds I will keep.
sts66 profile picture
If they have similar portfolios what's the point of having 5 different funds?
I own 3 of the funds ,FFC ,FLC & DFP , as I have found that they trade in enough of a disconnect that some are much more opportune to add to than others at different times . FFC has been the hardest to locate a good price for , the last several months until recently was fairly easy to get DFP at a good longterm hold price , seems like FLC comes available with most frequency. I hold these for income production once acquired , so its just a matter of waiting till discounts ,favorable market price occur, the window of opportunity can open & close sometimes in a matter of days ,its quite interesting to see develop & unfold as these reasonably similar funds diverge
ijeff profile picture
@hingroyield I think you are doing a good job of taking advantage of the temporary mis-pricing of the various similar funds. But as sts66 commented, I still don't get why F&C chooses to have 5 different funds. It might have something to do with limiting fund size. Other than that, can't think of anything.
That's something I obviously can't answer here about these funds or with Eaton Vance ,their equity funds ETG ,ETO , or their option funds EXD / ETV are essentially the same but different value metrics with different buying characteristics ,sure there are other examples certainly in the MLP space
Thanks for this article. I looked at all of these in January and decided to invest in FFC. It's been a wild ride since then, but the fund is almost back to where it was five months ago. I wish the leverage and expenses were a bit lower, but otherwise I'm happy with this investment. Your analysis confirmed that I made the right choice, and that there's no need to invest in any of the other funds from Flaherty & Crumrine.

Long FFC
Thanks for this look at the little-known F&C CEFS. I didn't realize how similar they all were.

After reading about them on SA, I figured I'd let an experienced manager use their expertise (and leverage) to provide a decent yield better than the standard ETF preferreds. I took a flyer on FFC, and when the pandemic came calling and preferreds sank like bricks for no basis that made sense to me, I bought some more, lowering my cost basis and goosing the yield. Only wish I had bought more.

The folks at F&C have a good track record and for those of us who don't aspire to buy baby bonds or trade in and out of them, and dig deep into the weeds evaluating them, I recommend FFC. I also bought PFFA, after following the Virtus management for a while, and it has rebounded like a kid bouncing off a trampoline, now up 100% from its lows in March. Sometimes it makes sense to have someone else do the heavy lifting and manage the crisis. Paying 2.5% expense for that expertise is a no-brainer for me.
Duken4evr11 profile picture
I have played FFC and PFF off each other for years. They generally move in the same way, but FFC is more volatile and pays higher dividends due to it's leverage and superior allocation vs. passive index PFF. PFF is much larger than FFC of course, with excellent liquidity.

When FFC gets in it's upper ranges (over $22 before the CV-19 dump), I like to take profits and buy PFF. During the pandemic dump, I sold PFF and bought FFC for under $10. Did the same in December of 2018, buying FFC for $16.50 at the time. It is great that both funds pay monthly dividends.

Right now I have been fading FFC a bit as it went over $20.50 and that price is not extreme at all, but starting to get a little high in the current climate, where at just over $35, PFF has a buck and a half or so more to run.

I always tend to own both, allocating up to 100% one way or another during extreme events. This has worked out well for me and of course paid dividends the whole time.
Fortunately, I managed to pick up quite a bit of FFC moments after the dividend was increased, but before the sellers became aware of the change. My purchase price was in the $18.16 range, which popped a few minutes later . . .
rickevantodd profile picture
Thank you for your article. Other than FFC, why have 4 funds with relatively small asset bases ? Wouldn’t one larger fund be just as easy to manage and more economical for everyone ?
Thanks for the article ! I've held PFD for 14 years and FFC more recently. Increased positions in each occasionally when the time is favorable (like two months ago). As expected, they behave a little more independently with regard to the market as a whole. The relatively high dividend makes up for the lag on share price valuation. Obviously interest rates are an impact as you detailed. I like that the managers don't do any trickery with ROC as some funds (eating their own fund).
sc21 profile picture
thank you for an insightful piece. As you correctly point out in terms of making a selection, relative delivery is a very important element in concluding which to select. sc
hawkeyec profile picture
Thanks for the review. Foolishly perhaps, I have all but one of F&Cs preferred CEFs. I have always liked preferred stocks, in spite of the fact that the conventional wisdom is that they are a hybrid security combining all the worst characteristics of bonds and common stock. IG preferreds pay better than bonds or stock. Even with the cost of leverage thrown in, the funds produce superior income to most of their individual counterparts and call risk is minimized. Forty percent of my best individual issues got called last year and that is getting old. I also have PFF, the general benchmark ETF for preferred stocks.
Alpha Gen Capital profile picture
All Pfd CEFs are expensive here.
hueyuh1 profile picture
Naturally, I've got the one not covered... PGX, since 2014.
Curious why that one was left out, because it's an ETF?
Alpha Gen Capital profile picture
Yes. Its just the Flaherty and Crumrine funds too.
Preferred CEFs comprise 11% of my income-focused portfolio. Long FLC, FPF, JPI, JPC and a few others. I enjoy the author's articles on CEFs and have learned quite a bit as I built my portfolio.

One thing I would suggest is to alert readers that all these funds are not 'pure' preferred funds. Most have substantial bond holdings as well, often as much as 40 to 50% of the fund's value. I am not aware of a purely 100% preferred fund; if one exists that would be interesting to know. In the past I have owned the ETF PFF as a preferred holding; but I switched to CEFs that use leverage. In the current low short term interest rate environment these seem the best value.

Final comment -- everyone seems to be joining the preferred CEF party now, and discounts have evaporated. Even FPF which historically has always traded at a 5% discount or more is now trading with a modest premium. I thankfully have a full allocation to my funds; if someone is looking to start a position this doesn't appear to be the best time.
CincinnatiRick profile picture
@TimNeuman "Final comment -- everyone seems to be joining the preferred CEF party now, and discounts have evaporated."

I think that "evaporation" in the discount to be simply a reflection in the time lag between the recovery in NAV and the visibility of that recovery to retail investors. While we have this debate re whether the economy will have a "V" shaped recovery, the recovery from the panic selloff in the preferred securities held by these CEFs has been rapid, a "V" if you will, especially so for a market sector that normally moves at a snail's pace.

I do not normally trade in preferred securities and bonds but in March, largely seeking the greater security in moving up the capital stack while still seeking out bargains, I bought a number of individual issues as well as a big hunk of FFC at 14. Now the question is whether this recovery has gone about as far as it is likely to go and whether therefor it is time to go back to my accustomed trading.
papaone profile picture
Great report and timely for me. I have 70% of my portfolio in cash and will soon go back into the market. I have also read all of RIDA's stuff, he is also an expert on preferreds.
I came to the conclusion that FFC was slightly better.
One question, why does C and F have these funds that look so similar?
They could combine them and save some operating costs.
Why did FFC increase their distributions if it's not even covering the distribution now?
Alpha Gen Capital profile picture
It may be now. We don't know since the data is stale. The increase was likely due to much lower leverage costs.
FFC, FLC ,DFP & all the other Flaherty & Crumrine Preferred funds just increased their distributions due to the leverage interest rates being decreased , read the press release ,is fascinating
& " they were all able to take advantage of drops in the short-term rate and, by virtue of being private agreements, they are out of scope of the 1940 Act asset coverage rules making them less liable for a chance of deleveraging." Would appreciate an explanation of this why / how they were able to avoid deleveraging when prices plummeted in March like so many other funds did
XXthCentMan profile picture
Thanks for the article itself AGC & also to hingroyield for the observation about the F & C press release. Its caused me to guess that the private agreements that allow flexibility in financing gave the F & C cefs a real edge. That use of private agreement financing might justify a prem that others don't warrant.
Retired Investor profile picture
@PaulY2 To properly calculate duration, assets need a maturity date which most PFD assets don’t have. That probably explains why the funds don’t try.
ChristopherSmith profile picture
Great article. Thank you.
I never can find even a rough estimate of the effective Duration of these funds. I like to track that for my portfolio, so I have to guess 12.0. Even the hyper complex credit swapped derivative loaded PIMCO funds have a estimated duration.
Alpha Gen Capital profile picture
FPF and LDP use hedges to reduce duration which they report on their fact sheets. The rest are very long duration.
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