PFF - HPS: Extremely Expensive Preferred Stock Fund That May Be Riskier Than Assumed
2024-04-12 15:09:02 ET
Summary
- John Hancock Preferred Income Fund III offers a high level of current income and has proven to be durable in the face of rising interest rates.
- The HPS closed-end fund has a relatively high yield compared to its peers and has outperformed the bond market and preferred stock index over the past few months.
- The fund's asset allocation consists of a combination of preferred stocks and bonds. This is not a pure preferred stock fund, as is commonly assumed.
- The HPS fund's share price has been substantially outperforming the underlying portfolio, which could pose risks as the recent CPI report threatens the rate cut narrative.
- The fund is trading at a substantial premium that, when combined with the monetary policy risks, makes it very difficult to recommend for new buyers today.
The John Hancock Preferred Income Fund III ( HPS ) is a closed-end fund, or CEF, that income-focused investors can employ as a method of achieving their goals of receiving a high level of current income from the assets in their portfolios. The John Hancock preferred stock funds have become quite popular among many investors over the past few years, as they have proven to be quite durable in the face of rising interest rates and have been among the few fixed-income funds that have not cut their distributions when confronted with the current environment. The preferred stock funds from this manager also tend to have higher yields than the preferred stock funds offered by peers, and this one is no exception:
| Fund Name |
| Morningstar Classification |
| Current Yield |
| John Hancock Preferred Income Fund III |
| Fixed Income – Taxable – Preferreds |
| 8.74% |
| Cohen & Steers Select Preferred and Income Fund ( PSF ) |
| Fixed Income – Taxable – Preferreds |
| 7.83% |
| First Trust Intermediate Duration Preferred & Income Fund ( FPF ) |
| Fixed Income – Taxable – Preferreds |
| 9.58% |
| Flaherty & Crumrine Preferred Securities Fund ( FFC ) |
| Fixed Income – Taxable – Preferreds |
| 7.05% |
| Nuveen Preferred & Income Fund ( JPC ) |
| Fixed Income – Taxable – Preferreds |
| 8.11% |
The John Hancock Preferred Income Fund III does not have quite as high of a yield as some of the other John Hancock preferred stock funds, but we can still see that it compares quite well to other funds that invest in this asset class. In fact, it has the highest yield of this peer group, except for the First Trust Intermediate Duration Preferred & Income Fund. This is something that potential investors might find appealing....
HPS: Extremely Expensive Preferred Stock Fund That May Be Riskier Than Assumed