PFF: Bigger Is Not Always Better

Ricardo Fernandez
2.57K Followers

Summary

  • Preferred shares offer high yields with pricing traits between bonds and equity risk.
  • iShares Preferred and Income Securities ETF is the largest ETF in the segment but has underperformed peers and high-yield bonds.
  • The current portfolio has a 6.8% YTW with a 9yr duration, trading 8% below par.
  • Rate sensitivity is high, with a potential 13% capital gain plus 7% yield pick-up if 10-year treasury yields decline to 3%.

Concept of an apartment or living room that is too small to fit a sofa

mikkelwilliam

Summary

Preferred shares are difficult to analyze and value given their quasi-debt and equity characteristics. When risk-free rates are low, the instruments provide higher yields than bonds with lower volatility than the common shares of the same company. When rates rise the

This article was written by

2.57K Followers
Experience is difficult to learn. After 30 plus years of critically analyzing the nuts and bolts of businesses as diverse as airlines, oil, retail, mining to fintech and ecommerce plus the macro, monetary and political drivers. I continue to immensely enjoy learning and applying my experience to unravel, comprehend and benefit from new ideas, technology, innovation and business models. In addition, living through multiple crises, tequila, Asia, dotcom, 9/11, the great recession and the Covid19 pandemia, plus a stint at entrepreneurialism (Export, Factoring and Printing) provides for an extraordinary base of experience to be applied across multiple disciplines.

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within 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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