Preferred Stock And Senior Loan Solutions For Yield-Starved Investors

The S&P U.S. Preferred Stock QDI Index, comprising preferred stocks whose dividends may be taxed at long-term capital gains rather than punitive ordinary income rates, currently yields 5.66%. Preferred stocks typically do not mature and therefore are less sensitive to interest rates. However, they do have higher correlation to stocks as well as higher volatility relative to bank loans and investment-grade debt. Beyond the tax advantage of these stocks, the index outperformed the broad-based S&P U.S. Preferred Stock Index by 3.5% per year on an annualized basis.

Hunting for income in a yield-starved world comes with many challenges for market participants. By measuring the risk/return profile of various fixed income market segments, yield-hungry market participants will be able to make informed decisions.

1 The degree of sensitivity to rising rates is measured by the weighted average life (WAL) of the S&P/LSTA U.S. Leveraged Loan 100 Index.

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