PREF - PFFD: Sell In May Go Away Don't Come Back
2024-05-31 16:17:39 ET
Summary
- Preferred shares have underperformed the wider market due to asymmetric returns and asymmetries of information and market power that disadvantage preferred shareholders compared to common equity and debt holders.
- Retail investors are often misled about the downside protection and safety of preferred shares, which is not historically accurate.
- The annual Federal Reserve Stress Tests have caused seasonality. PFFD has suffered from substandard, and often negative, second half returns.
- The S&P 500 has exhibited the exact opposite pattern. Over the last 10 years, its second half performance has been substantially better than the first half of the year.
- Investors who are risk adverse should go to cash in advance of June's release of the stress tests results. Bullish investors should sell PFFD and buy common equity. There is no benefit to holding PFFD.
I intensely dislike Preferred Shares as an asset class, and I have written the two articles on the subject. Never Buy Preferred Shares - A Lesson From Baseball, The NBA, And The CDO Market (hereafter referred to as Article 1), and, Preferred Shares Are Outperforming, It's A Great Time To Exit PFF And The Asset Class (hereafter referred to as Article 2) . These articles outline why I dislike preferred shares as an asset class. Both articles carried my recommendation that investors exit the asset class. In hindsight, those who followed this advice profited, and the rationale I based this advice on is still valid today. In brief;...
PFFD: Sell In May, Go Away, Don't Come Back