Does it Make Sense to Hold Preferred Stock Closed End Funds at This Time?

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Just sitting here daydreaming for a minute it struck us that holding preferred stocks CEF’s (Closed End Funds) at this time is maybe not smart.  Given that   we have a decent potential for increasing interest rates next year maybe we should do the obvious.

We see that the preferred stocks CEF’s and ETF’s remain a couple percent off of their yearly higher as of this moment.  The current yield on the CEF’s is between 6.9% on the low end and 8.4% on the upper end.  But we understand that perpetual preferreds are going to get murdered when/if rates move higher–and the CEF’s will get hit harder than the actual shares as they are all levered (between 27% and 34%).  

So to summarize–if you are moving toward longer durations don’t be stupid and hold a bunch of preferred stock CEF’s.  We fit the stupid camp–we will begin to unload our shares now.  Many times my wife tells me ‘for a smart man sometimes you miss the obvious’–and once again she is right (but don’t tell her).


Tim McPartland

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Tim McPartland
Tim McPartland is a private investor with over 45 years of investing experience. His analysis, research and writing is devoted to the hunt for income producing securities of all types, but in particular specializing in preferred stocks, exchange traded debt and Master Limited Partnerships.
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