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CIP Quips

Mispricing Between Issues

Did You Know...

Roosevelt Investment’s Current Income Portfolio includes $25 and $1000 par value preferred securities.  We believe that preferred securities offer the potential for higher income generation compared to other fixed income sectors, and they help balance our portfolio construction.  We also believe that pricing discrepancies can occur as between these two types of preferred securities.  While one company may issue both $25 and $1000 par value preferred securities with the same credit and structural risk, in some cases the difference in valuations between the two can be significant.

The example below from Nuveen Investments includes two nearly identical preferred securities with varied par values. The more popular preferred security issue for retail investors is the $25 par value.  In searching for enhanced income, the coupon rates deemed attractive by retail investors can drive $25 par preferred securities to rich valuation levels. On the other hand, institutional investors tend to value preferred securities based on their yield spreads.  This difference in evaluating the two types of preferred securities can create surprising opportunities for astute investors.  In this example, an investor could have paid 3% less for the institutional $1000 par value preferred security and have gained 65 basis points in yield to call (YTC) versus the same structure in a $25 par value preferred security.

Retail and institutional investor’s value preferred securities from the same company differently

 

What are we thinking?

Packaged with our intermediate investment grade corporate bond allocation, our opportunistic preferred security sleeve is designed to pick up extra yield that income investors seek, in a conservative, diversified and balanced manner.  Our Current Income Portfolio also uses fixed-to-floating rate and pure floating rate preferred securities, which provide coupon payments that should increase in line with rates. We believe we are offering an attractive solution for income investors who are looking for conservative allocations and additional yield. And as active managers, we monitor the reference rates, credit, and call risks.  In our view, investment decisions should be based on long term plans and risk tolerance levels, and we seek to provide value by filtering out the noise, making reasonable and informed decisions, and diversifying in preparation for volatility.  Let us show you how.

 


 

This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.

Past performance is not a guarantee of future results. Indices are unmanaged and cannot accommodate direct investment. Themes assigned as per Roosevelt Investments’ evaluation. Risk tools may include cash or other securities that we believe possess a low or inverse correlation to the overall market.

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

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The Roosevelt Investment Group, Inc. is an independent investment management firm that is not affiliated with any parent organization. The Roosevelt Investment Group, Inc. manages equity, fixed income, and balanced assets for primarily U.S. clients. The Roosevelt Investment Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission and notice filed in all 50 states.

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