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The Case for Preferred Securities

February 2017
Preferred securities (“preferreds”) are often overlooked by investors. We believe preferred securities can play a role in most investors’ portfolios as the asset class provides a relatively high level of income. Further, we believe the fundamentals of the underlying issuers are stable to improving, depending on the sector, resulting in the potential for spread tightening. Preferreds have greater credit risk (average credit quality BBB/BB) and volatility than core fixed income and should be considered alongside high yield, bank loans, convertibles, and emerging market debt. While there are some investment challenges with the asset class, which we outline in greater detail in the paper, we believe preferreds are a compelling investment idea in today’s low yielding environment.

 

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