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Flipping Newly Issued Preferreds

Jun. 10, 2020 8:15 AM ETATH.PA, ATHHL, PUBXL6 Comments


  • Buying newly issued preferreds in the Grey market for a short-term hold is a long favored strategy by more active income investors.
  • We show that the strategy has generated decent returns in the first month of trading of around 1.4% net of dividend accrual over 2019.
  • We discuss the main reasons why the strategy appears to work and highlight two recent issues that we like: ATHHL and PUBXL.
  • Looking for more stock ideas like this one? Get them exclusively at Systematic Income. Get started today »

With the median retail preferred stock seeing a nearly complete recovery back to "par" from its March drawdown means further capital gains are going to be harder to bank from here on. This means that investors looking to extend their gains will need to find another source of returns besides current middling yields. One technique that has enjoyed some popularity among the more active investors is "flipping" newly issued stocks. In this article we take a look at this technique to see if it can add alpha to investors' preferred portfolios.

Source: Systematic Income, Tiingo

We also highlight a couple of recent new issues that we have added to our Focus List.

  • Athene Holding 6.375% Non-Cum Fix-Float Series C (OTCPK:ATHHL)
  • Public Storage 4.625% Cum Series L (OTCPK:PUBXL)

Flipping Out Over New Issues

For all of the advances over the last decade in electronic trading, transparency of pricing and ease of market access the retail preferreds market remains weirdly archaic in some ways. The way many retail preferreds come to market is first via the so-called "Grey" or "Other OTC" Market. For example, on 8-June Public Storage issued the new 4.625% Series L shares with a permanent ticker symbol (PSA.PH). However, because it takes a few days to get the shares listed on NYSE the underwriters, who have already priced the shares, aren't particularly keen to warehouse them and take the price risk. Instead, they acquire a new ticker for the shares, in this case, PUBXL and start selling the shares to investors prior to their listing on NYSE.

In order to be able to trade shares in the OTC market, investors need to know two main things. First, they obviously need to be aware that there is a new issue out there. Normally, companies make an announcement via a press release which investors can

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This article was written by

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Income investing across BDCs, CEFs, ETFs, preferreds, baby bonds and more.

At Systematic Income our aim is to build robust Income Portfolios with mid-to-high single digit yields and provide investors with unique Interactive Tools to cut through the wealth of different investment options across BDCs, CEFs, ETFs, mutual funds, preferred stocks and more. Join us on our Marketplace service Systematic Income.

Our background is in research and trading at several bulge-bracket global investment banks along with technical savvy which helps to round out our service. 

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