Preferreds Get Crushed Again

One asset class that has reared its ugly head again is the preferred market.  While the credit markets seem to have stabilized a bit, preferreds have gotten crushed over the past couple of weeks.  As shown below, the ETF that tracks an index of all preferred stocks in the US (PFF) has dropped sharply from its recent peak, falling 27% since January 6th.  The ETF that specifically tracks financial sector preferreds (PGF) has not surprisingly gotten hit even harder.  PGF has fallen all the way back down to its November lows, and it is down 36.5% since January 6th.  Unfortunately, the November lows are now a not-too-distant memory for preferred holders.

 

 

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Comments

[Max]

Thanks, these were on my bottom watch list. Almost forgot about them. Thx again

[Max]

DD on PFF: majority of holdings per yahoo are BAC and other bailout banks

Is there a non financial preferred ETF?

[Hoss]

Additional DD:

Very difficult to get around the Financials when it comes to a Preferred oriented ETF or CEF. You can always look at the individual holdings of each ETF or CEF and see what sort of non-financial preferreds they are holding. PFF is holding preferreds from FCX, SGP, CHK, AVY(an odd one), REP, and quasi financials - MET, PSA, and F.

According to skillanalytics ETF correlation tracker, there is a 10, 50, 120, and 260 day correlation of .947, .511, .771, and .933 respectively between PFF and XLF. With the exception of the 50 day, those are all healthy correlations and positive - so one could say PFF is simply moving in the same direction as the financial sector.

http://skillanalytics.wordpress.com/

Recommended reading if you're partial to preferreds:

Flaherty & Crumrine Preferred Valuation After the TARP
http://www.flaherty-crumrine.com/EducationCentral/PFDs/Preferred%20Valuation%20After%20the%20TARP%20(January%205,%202009).pdf

TARP Capital Purchase Program Senior Preferred Stock and Warrants - Summary of Senior Preferred Terms

http://www.treas.gov/press/releases/reports/document5hp1207.pdf