PFO: High U.S. Exposure And Low Yield Relative To Peers

2025-05-18 01:31:44 ET

Summary

• PFO's yield and long-term total returns lag peers, offering little compensation for its higher leverage and risk profile.
• The fund's recent outperformance is likely due to its lower distribution, which minimizes net asset value destruction in a weak preferred market.
• PFO's high U.S. allocation is a disadvantage versus more global peers, especially amid concerns over U.S. banking and consumer debt.
• Despite a wide discount to NAV, I see no compelling reason to prefer PFO over better-yielding, better-performing alternatives.

The Flaherty & Crumrine Preferred Income Opportunity Fund ( PFO ) is a closed-end fund that provides a way for income-seeking investors to earn a high level of current income from the assets that they already possess. However, this fund is nowhere near as good at the provision of income as most income-oriented closed-end funds. For example, the Flaherty & Crumrine Preferred and Income Opportunity Fund only has a 6.86% current yield. This is higher than the major domestic fixed-income indices, but not by much:

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