Preferred Stock Strategist

Preferred Stock Strategist

November Update: Preferred Stock Strategist

* Preferreds sell off in October:
   Prices of fixed-rate preferreds fell for the fourth consecutive month
   against a backdrop of steadily higher bond yields. Although prices
   were uniformly lower last month, preferreds with shorter call
   protection periods managed to remain at or above par-thereby
   outperforming longer duration preferreds.

* Retain full underweight:
   We continue to recommend a full underweight within the preferred
   market. Expensive valuations and the current interest rate outlook
   represent the primary risks to performance, in our view. Given this
   environment, we recommend upgrading credit quality, shorter call
   protection preferreds, tax-advantaged preferreds, and floaters.

* Floating-rate preferreds:
   Given the outlook for sustained Fed tightening through January, we
   continue to recommend floating-rate preferreds. This sector of the
   preferred market offers the potential for higher coupon income and low
   interest rate risk. In addition, the majority of floating-rate
   preferreds distribute tax-advantaged income.

* Rating changes:
   This month we reclassified our coverage of ONE V, D A, DRE I, GMA, HLI
   B, HI F, HRP A, and PCE A now that these securities are approaching
   their first call date.

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