FFC: Leveraged Preferred Equity CEF, 7% Yield

2025-01-16 10:20:00 ET

Summary

• FFC's high leverage and reliance on short-term funding make it highly sensitive to Fed rate changes, limiting potential price gains unless rates drop significantly.
• The fund's strong performance in 2024 was driven by lower Fed Funds rates and a rally in bank preferred shares, showcasing effective security selection.
• Despite lower rates, FFC's persistent high leverage and funding profile suggest continued high discount to NAV, with significant downside risk in a risk-off event.
• FFC is best suited for active trading rather than a buy-and-hold strategy, given its high beta and vulnerability to spread widening in today's inflationary environment.

Thesis

When you hear the word 'leverage', you might think 'high yield' as well. It is usually the case, but not entirely true for Flaherty & Crumrine Preferred Securities Income Fund ( FFC ). FFC is a fund which we have covered before and which we own. In our last article from April 2024 we highlighted how the CEF was in dire need of lower rates given its funding profile. The Fed did deliver starting September 2024, and the CEF is up significantly since our last coverage:

Read the full article on Seeking Alpha

For further details see: