That article got someones panties in a wad as they wrote an article in direct response to the one you cited..
http://seekingalpha.com/article/3993264-preferred-stock-fine-way-go
Personally, I had no reaction to the article as it wasnt really relevant to my portfolio of preferreds. Here was his 4 points of contention..
1. They are insignificant part of capital structure..... That really has nothing to do with anything....My local bank is an insignificant part of the US Banking system. So what, its still important to me. Personally in my issues I l own I like the fact they are insignificant in the capital structure of the companies I invest in. Take CTWSO, I own. $600 million market cap water company... It has 2 preferreds with a total value of $500,000... I prefer that as that means they dont need preferreds to survive like shipping companies do because they cant get the ADDITIONAL money through debt market or banks
2. Preferreds are mostly concentrated in financial firms. .....This isnt exactly a profound statement. 80% of preferreds in monetary value are in financial stocks. If some one doesnt like financial preferreds dont buy them. My preference is not to, but that is just me...I would say no more than 10% of mine are financials.
3. Returns and volatility are inferior to junk bonds....A lot of that statement can be misleading as it depends on what year you artificially choose as your starting point. But again, the statement does not bother me as I dont buy junk bonds and I dont buy risky preferreds. Almost any article about preferreds doesnt really pertain to me as they do not reflect what utility preferreds do...I basically own investment grade issues...You do not cross compare investment grade to junk... Different yield/risk classes.
4. Great recession preferred stocks suffered worse than any class. I would suggest outside of the safe govt debt and investment grade bond market, nothing did BETTER in that period than utility preferreds. They certainly out performed the classes he cited. But his point 4 missed the boat. This is where he should have explained why they did so poorly and teach them about "capital structure of debt" and "debt market freeze ups". This is exactly why I do invest in utility preferreds as they do not have this issue. But, I want safety over yield.
There are many dummies plowing into preferreds and they do not necessarily know what they are doing. He missed the boat on discussing this. There are a lot of reasons why one shouldnt own them but his points were irrelevant and didnt get into why one must be prudent here.
Having said all that this one of the reasons I do not like preferred mutual funds... They buy what is available and liquid, not what is quality. Plus they are in sectors I prefer not to.
A person can rarely consistently beat a common stock index, but anyone with a brain and willingness to learn can easily beat a preferred index fund. Totally different animals.
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