PrefLetter Adds Class for Recommendations: FixedResetPremium

There is a lot of demand for short term preferred shares; short-term meaning “with a term of five years or less”.

I have resisted recommending FixedResets as part of the “ShortTerm” class that was introduced in the September 2008 edition, largely on the grounds that they are not, in fact, short term. They are just as perpetual as the straights and are fully exposed to increases in credit spreads and declining credit quality of the various issuers (see my seminar on FixedResets for further information) – in the same way that FloatingRate issues are not Money-Market substitutes.

However, most issues are now trading well above their call price, with reset spreads that are well above current market rates; investors may consider these issues to be five-year issues, provided they bear firmly in mind that they are extendible five year issues, and will have their maturity date reset to infinity if it is not convenient to the issuer to repay the principal. However, in the same manner as PerpetualPremiums, FixedResetPremiums have buffer protection against an increase in spreads. Investors who understand the risks and are prepared to accept the consequences may find the FixedResetPremium class attractive … so selections will be added to the PrefLetter recommendations commencing with the August issue.

The August issue will be prepared as of the close on August 14 and eMailed to subscribers prior to the opening on August 17.

One Response to “PrefLetter Adds Class for Recommendations: FixedResetPremium”

  1. […] of preferred share with investment-grade constituents. This will be the first issue that officially recognizes FixedResetPremium issues as a specific class. The recommendations are taylored for “buy-and-hold” […]

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