PFF: Preferred Stocks Could Suffer Worse Declines In 2023 As Banking Risks Mount

Summary

• This year, preferred equities have lost moderate value as higher interest rates have lowered their present value.
• With real interest rates falling and inflation moderating, preferred equity funds like PFF should not continue to lose value from higher interest rates.
• 70% of PFF's assets are concentrated in the financial sector as recession risks mount.
• PFF's most significant risk is a large increase in credit risk spreads, likely stemming from a sharp decrease in banks' financial stability.
• With inflation elevated, investors should not bet on the Federal Reserve bailing out the market again in 2023.

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The preferred equity market has had a challenging year, with top preferred funds like iShares Preferred and Income Securities ETF (NASDAQ:PFF) erasing ~18.5% of their value YTD. That loss is nearly four years of the ETF's 2021 dividend yield. Many preferred equities

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