Fixed Income Perspective: Preferred Securities

In today’s environment of low-interest rates and heightened volatility, preferred securities appear attractive for their high current yields and their history of lower sensitivity to rising interest rates. They also can help diversify a fixed income portfolio due to their low correlation to other bond and stock asset classes. We believe preferred securities offer many additional benefits, including:

  • Tax-advantaged income potential, since many preferred security structures pay qualified dividend income (QDI)
  • Reduced interest rate sensitivity through fixed-to-variable rate coupon structures
  • Predominantly investment grade securities to manage credit risk
  • Inherent market structure inefficiencies that create alpha opportunities for active managers
  • Solid outlook with strong fundamentals, improving technicals and historically attractive valuations

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