C - HPI: Take Some Of Your Profits Today
2024-02-13 12:55:04 ET
Summary
- The John Hancock Preferred Income Fund offers a high level of income, with a current yield of 9.21%, comparable to junk bond and leveraged loan funds.
- The HPI closed-end fund has not cut its distribution despite the decline in the value of preferred stocks, but its net asset value has decreased by 20.89% over the past three years.
- The fund's holdings are primarily in preferred stocks and corporate bonds, with significant exposure to the banking sector, but it is probably reasonably safe.
- It is very difficult to justify the level of rate cuts that are priced into this fund.
- The fund is trading at a premium valuation, so it may be best to take some gains right now.
The John Hancock Preferred Income Fund ( HPI ) is a closed-end fund, or CEF, that can be employed by income-focused investors who are looking to derive a substantial level of income from the assets in their portfolios. The fund manages to do this very well, as its 9.21% current yield is comparable to that offered by some of the better junk bond and leveraged loan funds. It is also substantially above the yields offered by the Flaherty & Crumrine preferred stock funds, which is perhaps the fund house that is best known for its array of preferred stock funds.
This fund is also one of the few fixed-income funds that did not cut its distribution in response to the rapid increase in interest rates during 2022. This is surprising, as that event caused the price of preferred stocks to plummet fairly severely and the fund almost certainly took heavy losses. We can see this quite clearly by looking at the fund’s net asset value over the past three years:
HPI: Take Some Of Your Profits Today