Super Quality Preferreds
By: Tim McPartland,
As we implored investors yesterday, if you are sticking around the perpetual preferreds arena you would be wise to ‘play’ in the high quality arena.
When you are looking for quality preferred shares you can’t do too much better than those issued by the various Gabelli funds. As most of you likely know Gabelli has a full range of Closed End Funds (CEF’s) including the following–each of which has perpetual preferred shares outstanding.
Gabelli Convertible and Income (ticker:GVC)
Gabelli Dividend and Income Fund (ticker:GDV)
Gabelli Equity Trust (ticker:GAB)
Gabelli Global Multimedia (ticker:GGT)
Gabelli Heathcare and Wellness (ticker:GRX)
Gabelli Utility Trust (ticker:GUT)
Gamco Global Gold and Natural Resources (ticker:GGN)
The preferreds of these issues are all rated ‘A’ or above by Moodys–and additionally, since they are preferred shares of CEF’s, they must maintain a asset coverage ratio of 200% or more per the Investment Company Act of 1940. We won’t go through all of the details of why this means these shares are super protected—but to find out all of the details you can check an article we wrote on Seeking Alpha article 4 years ago with the specifics of how these shares are protected. All info in that article remains true today.
Like all income securities you can have safety or you can have high yield, but normally you can’t have both at the same time and this is true with the preferreds of the Gabelli Funds. Current yields range from 5.32% to 5.86%, which while not high, is not too damned bad for a highly rated security.
Our liking of the Gabelli preferreds has no real relationship with the Gabelli CEF’s themselves–this is about the preferred shares and not related to the actual CEF performance–as long as they have nice asset coverage we are happy.
As you know we are not buyers of perpetual preferreds at this point in time and this short article is targeted toward those investors that are looking for quality, with a reasonable yield, and are not as sensitive to capital fluctuations. These shares will move lower if interest rates move higher and at some point we will be interested.
You can review details of the available Gabelli issues on the preferred stock page.