As many readers and commenters have noted that even with the 10 year treasury dropping in yield and even with Jay Powells’ dovish comments preferred stocks continue to move lower. We can verify that on average perpetuals continue to drop. Of course averages are just that–averages and the numbers do not tell the tale for all investors.
A week ago the average $25/share preferred was priced at $23.77–today that average price is $23.58. No only is this average down on the week–it is down by one of the sharpest weekly losses that we have seen in the last year.
Additionally a week ago we had 261 $25/share preferreds trading below $25–today we have 286 issues trading below $25. So while there are outliers dragging the average price down (such as Maiden Holdings, Amtrust etc) it is not just these few issues driving the preferred market.
While the economy is in ‘Goldilocks’ mode at the moment, obviously preferred shares are not following suit.
While we hold plenty of short duration securities the few perpetuals we do hold have caused a little damage. Today, which is a big dividend day for us (because of all the monthly paying Gladstone issues), we end up near even for the day because we lose a dime here and a dime there on the perpetuals we hold and they balance the dividends received. Frustrating.
We know everyone out there is going through the same situation and there are no magical answers to the problem, but we are relatively confident that absent a black swan event preferreds should start creeping higher very soon. As we mentioned we are looking at entering more perpetuals toward the end of December and January (getting the Fed hike behind us) and we are hopeful for a stable preferred market by then.
In the meantime investors should be looking at their shopping lists–not for Christmas, but for their portfolios. Preferreds from REIT Arbor Realty and MLP Nustar are extremely tempting, but it is too soon for us so we will build the list and wait another 4 weeks.