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A Google search on 'preferred stock funds' will result in a lot more listings. I've always used an ETF such as PFF, or a CEF such as FPF for a preferred fund holding.
Does anyone know of a good stable "preferred" stock fund, especially in the Vanguard family.?
I would be very careful about preferred funds. Preferreds live in the space between senior debt (traditional corporate bonds) and common stock. Traditional preferreds are $25 par value stocks, while there are some hybrid preferreds that are $1000 par value.
European banks are pulling out of the $25 par market after recent legislation. So the supply of those offerings are shrinking.
Meanwhile, all the indexes tracked by the passive ETFs (and mutual funds) are concentrated in the $25 par market. And these ETFs have seen a pretty substantial inflow of funds as investors seek yield.
As a result, the $25 par preferreds are getting very expensive. Supply is shrinking, and demand from the passive index tracking funds increases as funds flow in.
To give you an idea of the effect of the passive $25 par funds + shrinking supply at that level, the average value of each Cohen & Steers holding is over $30M.
To compound matters, the passive index tracking funds do not lend their preferred holdings out for shorting. As a result, it’s very expensive to short these preferred stocks because they are very hard to borrow. So there is not a lot of short interest.
This serves to increase the downside risk should ETF/ mutual fund flows reverse out of preferreds. The index trackers will be forced to sell. Not only will buyers be scarce, but there won’t even be demand from short sellers looking to cover their shorts and take profits.
It’s a recipe for disaster in the next bear market.
I would look for actively managed preferred funds with smaller position sizes that can access the $1000 par market in addition to the $25 par market. These may not be class leading in returns, but they are much safer.
Comments
https://money.usnews.com/funds/mutual-funds/rankings/preferred-stock
Kiplinger article from December 13, 2017:
https://www.kiplinger.com/slideshow/investing/T018-S001-10-preferred-stock-funds-safe-substantial-yields/index.html
A Google search on 'preferred stock funds' will result in a lot more listings. I've always used an ETF such as PFF, or a CEF such as FPF for a preferred fund holding.
European banks are pulling out of the $25 par market after recent legislation. So the supply of those offerings are shrinking.
Meanwhile, all the indexes tracked by the passive ETFs (and mutual funds) are concentrated in the $25 par market. And these ETFs have seen a pretty substantial inflow of funds as investors seek yield.
As a result, the $25 par preferreds are getting very expensive. Supply is shrinking, and demand from the passive index tracking funds increases as funds flow in.
To give you an idea of the effect of the passive $25 par funds + shrinking supply at that level, the average value of each Cohen & Steers holding is over $30M.
To compound matters, the passive index tracking funds do not lend their preferred holdings out for shorting. As a result, it’s very expensive to short these preferred stocks because they are very hard to borrow. So there is not a lot of short interest.
This serves to increase the downside risk should ETF/ mutual fund flows reverse out of preferreds. The index trackers will be forced to sell. Not only will buyers be scarce, but there won’t even be demand from short sellers looking to cover their shorts and take profits.
It’s a recipe for disaster in the next bear market.
I would look for actively managed preferred funds with smaller position sizes that can access the $1000 par market in addition to the $25 par market. These may not be class leading in returns, but they are much safer.
To PBKCM, I would ask :how do I find a fund that uses $1000 par stock?