Many preferred securities (also known as capital securities or hybrids) offer yields of 5–6% or more, largely from investment-grade issuers, yet the complex and often misunderstood asset class is typically underutilized by institutional investors. We discuss how preferreds may improve income profiles and risk-adjusted returns within diversified portfolios due to their unique and complementary characteristics.
- Preferred securities are generally issued by noncyclical companies with stable business models in regulated industries—attractive attributes from a risk standpoint, yet they oﬀer some of the highest income rates found within investment-grade fixed income.
- Preferreds have often provided stronger total returns compared with other fixed income investments.
- In addition, preferreds can provide diversification benefits and help manage interest-rate risk, given the large number of low-duration structures found in the asset class.
- Institutional investors may implement a preferreds allocation as an addition within an income-oriented solution or as a satellite allocation in a core/satellite model.
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Data quoted represents past performance, which is no guarantee of future results. An investor cannot invest in an index. This material is provided to certain qualified institutional and professional investors or their advisors only for informational purposes and reﬂects prevailing conditions and our judgment as of this date, which are subject to change. It does not constitute investment advice or a recommendation or oﬀer. We consider the information in this presentation to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of suitability for investment. Risks involved with investment, including potential loss of capital, are substantial and should be carefully considered.
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