Preferred securities specialist Cohen & Steers is poised to launch the Cohen & Steers Sicav Global Preferred Securities Fund as part of its Luxembourg Ucits platform on 15 May.
The investment house said that the fund combines its core competencies in the alternative income and real assets space to both European and global investors.
Preferred securities are also known as capital securities or hybrids and act like bonds paying out a fixed or floating rate of income. They are also a form of equity for issuers and lie between common stock and senior debt in a company’s capital structure.
The current preferred securities market is worth more than $900bn (£698bn) with preferred securities generally issued by larger companies with stable cash assets including banks, insurance companies and utilities providers offering favourable leads in a current high-level fixed income market for those that are less represented in other fixed income investments, potentially helping to improve portfolio efficiency.
William Scapell, the lead manager on the Cohen & Steers Sicav Global preferred Securities Fund, said: “After a 35-year bull market in bonds, investors must now contend with two challenges: how to earn income with yields still hovering near historic lows, and how to protect against a rising interest rate environment."
He said the fund addressed both of these concerns.
He added: “Based on expectations of rising rates globally, our focus is primarily on attractive income opportunities in securities with lower durations, which have been historically less sensitive to changes in interest rates. As we have often seen, high income and wider credit spreads can have a smoothing effect on total returns during periods of volatility.”
Commenting on the fund, Justine Fearns, research manager at independent financial advisers Chase de Vere, said: “Preferred securities are generally issued by large companies, carry no voting rights and typically sit between secure debt and common stock. When packaged as a fund, it means that investors are buying into specialist income.
“This fund does add something a bit different to the UK market and is likely to pay an attractive yield, which will hold appeal in a low interest rate environment. It also benefits from an experienced investment team.
“However, it’s unlikely we would want to get specialist exposure in this area and instead we prefer to invest with strategic bond managers with flexible mandates, who may be able to invest in some of these assets if they believe there are good opportunities.”
The ‘I’ class is priced at 45 basis points.
In the process of having its GBP distribution option shelf registered Cohen & Steers will be applying for UK distributor status when the fund is launched. Preferred securities are high-yielding hybrid investments behaving like bonds, paying a fixed or floating rate of income and therefore are considered appropriate for the experienced investor. They are generally – although not in all cases – senior to common stock and carry a lack of company voting rights for the investor, however, they are subordinate to secured bonds, so will appeal to a niche although cash rich investment audience.
In what seems to be an ever extending low-interest UK investment environment, advisers could well welcome such a potentially high-yield fund despite its challenges. However, with more than a decade in the preferred securities markets, it would be an unwise investor that would question the experience of Cohen & Steers in this particular sector – of course, depending on this particular fund's UK approval.