The Case for Preferred Securities

Preferred securities play a unique role in capital markets and have unique investment attributes. They are fixed-income investments, but with certain equity characteristics such as deeper subordination in the capital structure. Investors are compensated with notably high rates of income. Despite preferreds’ long stated lives, abundant fixed-to-floating-rate preferred instruments can significantly diminish interest-rate risk in diversified portfolios. Since many preferred pay legal dividends, preferreds can also offer significant tax advantages.