Preferred Stocks and Exchange Traded Debt Issues Moving Lower

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We like to watch the macro pricing levels of all the different sectors of income securities—watching any given singular security is of no real help in establishing trends.  ETF’s of a sector can help and Closed End Funds (CEFs) may help, but they trade with discounts and premiums so they are not always helpful.  We watch 1 item that is highly scientific (not really) and that is the number of $25 preferreds that are trading above and below par value.  We go to the preferred stock page which lists issues by price–here.  10 days ago there were approximately 130 issues trading below par ($25) and with interest rates moving up somewhat there are now around 155 issues trading at or below par.  Our preferred listing contains around 390 issues in total and as more and more issues fall below par this obviously means that bargains are being created. We would think that by the end of the year we may have over 200 issues trading below par–meaning current yields will be higher.  

So what is the point of watching the macro pricing of preferreds and debt?  To us it is too simple–we will be very patient watching pricing and yields (of course they go hand in glove) with the intent of locking in the very best possible yield consistent with our risk profile.  Now these potential yields are not predictable so at some point in time one has to decide if the current available yield is acceptable to you, the investor. For instance if the current average is 6.5% and interest rates move higher and the current yield average moves to 7.50% is that acceptable? Nothing is ever certain–but if we want to be invested 7.5% always trumps 6.5%.


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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