Investors are facing new challenges as many of their single-issued preferred securities may be subject to call—including some that are trading above par and could lose value. Now may be the time to look beyond single issues to the added value of an actively managed portfolio.
We believe two turnkey solutions are waiting
The potential added value of active portfolio management
Some preferred securities have better call protection than others—just one of many factors we consider when building diversified portfolios. We believe this complex asset class is best navigated by an experienced investment team with deep, global research capabilities.
Our investment team
Our preferred securities team is led by five portfolio managers averaging 16 years of experience at Cohen & Steers and over 22 years in the industry. They are joined by a team of analysts whose proprietary analysis is supported by extensive contacts in the industry and leverages Cohen & Steers’ global research capabilities, as well as a team of dedicated traders. As of December 31, 2023, the team managed $18.1 billion in preferred securities across all the firm’s strategies for individual investors and pension funds around the world.
FURTHER READING
3 Reasons to own preferred securities today
We believe an exceptional buying opportunity for preferred securities may exist today.
Tax-smart income alternatives
Strategies with inherent tax efficiencies may help investors diversify sources of income and potentially keep more of what they earn.
Understanding quality, ratings and long-term compensation of preferred securities
Preferreds provide attractive income and total returns from high-quality securities; despite added risks, default rates can be lower than credit ratings suggest.
Important disclosures
Please consider the investment objectives, risks, charges and expenses of any Cohen & Steers fund carefully before investing. A summary prospectus and prospectus containing this and other information may be obtained by visiting cohenandsteers.com or by calling 800 330 7348. Please read the summary prospectus and prospectus carefully before investing.
Data quoted represents past performance, which is no guarantee of future results. This material is for informational purposes, and reflects prevailing conditions and our judgment as of this date, which are subject to change without notice. It does not constitute investment advice or a recommendation or offer. We consider the information in this material to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of appropriateness for investment. There is no guarantee that any market forecast set forth in this material will be realized. This material should not be relied upon as investment advice, does not constitute a recommendation to buy or sell a security or other investment and is not intended to predict or depict performance of any investment. This material is not being provided in a fiduciary capacity and is not intended to recommend any investment policy or investment strategy or take into account the specific objectives or circumstances of any investor. Please consult with your investment, tax or legal professional regarding your individual circumstances prior to investing.
Risks of Investing in Preferred Securities. Investing in any market exposes investors to risks. In general, the risks of investing in preferred securities are similar to those of investing in bonds, including credit risk and interest-rate risk. As nearly all preferred securities have issuer call options, call risk and reinvestment risk are also important considerations. In addition, investors face equity-like risks, such as deferral or omission of distributions, subordination to bonds and other more senior debt, and higher corporate governance risks with limited voting rights.
Risks associated with preferred securities differ from risks inherent with other investments. In particular, in the event of bankruptcy, a company’s preferred securities are senior to common stock but subordinated to all other types of corporate debt. Throughout this presentation we will make comparisons of preferred securities to corporate bonds, municipal bonds and 10-Year Treasury bonds. It is important to note that corporate bonds sit higher in the capital structure than preferred securities, and therefore in the event of bankruptcy will be senior to the preferred securities. Municipal bonds are issued and backed by state and local governments and their agencies, and the interest from municipal securities is often free from both state and local income taxes. 10-Year Treasury bonds are issued by the U.S. government and are generally considered the safest of all bonds since they’re backed by the full faith and credit of the
U.S. government as to timely payment of principal and interest.
Preferred funds may invest in below investment-grade securities and unrated securities judged to be below
investment-grade by the Advisor. Below investment-grade securities or equivalent unrated securities generally involve greater volatility of price and risk of loss of income and principal, and may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher grade securities. The Fund’s benchmarks do not contain below investment-grade securities.
Contingent capital securities (sometimes referred to as “CoCos”) are debt or preferred securities with loss absorption characteristics built into the terms of the security, for example a mandatory conversion into common stock of the issuer under certain circumstances, such as the issuer’s capital ratio falling below a certain level. Since the common stock of the issuer may not pay a dividend, investors in these instruments could experience a reduced income rate, potentially
to zero, and conversion would deepen the subordination of the investor, hence worsening the investor’s standing in a bankruptcy. Some CoCos provide for a reduction in the value or principal amount of the security under such
circumstances. In addition, most CoCos are considered to be high yield or “junk” securities and are therefore subject to the risks of investing in below-investment-grade securities. No representation or warranty is made as to the efficacy of any particular strategy or fund or the actual returns that may be achieved.
Duration Risk. Duration is a mathematical calculation of the average life of a fixed-income or preferred security that serves as a measure of the security’s price risk to changes in interest rates (or yields). Securities with longer durations tend to be more sensitive to interest rate (or yield) changes than securities with shorter durations. Duration differs from maturity in that it considers potential changes to interest rates, and a security’s coupon payments, yield, price and par value and call features, in addition to the amount of time until the security matures. Various techniques may be used to shorten or lengthen the Fund’s duration. The duration of a security will be expected to change over time with changes in market factors and time to maturity.
No representation or warranty is made as to the efficacy of any particular strategy or the actual returns that may be achieved.
This commentary must be accompanied by the most recent Cohen & Steers fund factsheet(s) and summary prospectus if used in conjunction with the sale of mutual fund shares.
Cohen & Steers Capital Management, Inc. (Cohen & Steers) is a registered investment advisory firm that provides investment management services to corporate retirement, public and union retirement plans, endowments, foundations and mutual funds.
Cohen & Steers U.S. registered open-end funds are distributed by Cohen & Steers Securities, LLC, and are only available to U.S. residents.