Fixed income strategy:
Aim to offer compelling yields with high credit quality amid rising rate environment
Preferred securities are historically less sensitive to interest rate changes and have been performing well in the past two rate hike cycles.
Historical performance during past rate cycles1
There are couple of reasons for preferred securities to standout:
As the COVID situation remains fluid, pressuring recovery in the economy, investors would not only look for higher yielding asset classes but also focus on higher asset quality to seek more stable and sustainable income.
Preferred securities, with an average investment grade, are offering around 4.3% yield to maturity, which is more attractive when compared to 1.2% of US Treasuries and 2.4% of US investment grade corporate bonds2.
Yield of major fixed income assets(%)2
In terms of sector allocation, we differ greatly from our peers and the preferred market, as we have smaller allocations in financials, and higher allocation in electric utilities where most operators have a regulated rate of return. This can help provide highly stable and predictable stream of earnings that are secured by a lack of competition and low sensitivity from commodity prices and the economic cycle.
Sector Allocation (%)3
1. Source: Bloomberg, as of 31 December 2021. Preferred securities market is represented by ICE BofA US Capital Securities Index (C0CS) for the performance period of 2000 to 2012 as ICE BofA US All Capital Securities Index (I0CS) has shorter history starting from April 2012; Rebased to 100 on 31 December 1999. Monthly data.
2. Bloomberg, as of 31 December 2021. Index ratings refer to Bloomberg composite rating. US HY bonds are represented by ICE BofA US High Yield Index; Preferred securities are represented by ICE BofA US All Capital Securities Index; US IG Corp bonds are represented by ICE BofA US Corporate Index, US treasuries are represented by ICE BofA US Treasury & Agency Index. A positive distribution yield does not imply a positive return. For illustrative purposes only. Past performance is not indicative of future performance.
3. Source: Bloomberg, Manulife Investment Management, as of 31 December 2021. Preferred securities measured by ICE BofAML US All Capital Securities Index. Performance is for reference only. Sector breakdown by Bloomberg Barclay level 2-3 classification. Portfolio holdings and characteristics are subject to change at any time. Information about the asset allocation is historical and is not an indication of the future composition. The securities described are for illustrative purpose only and do not constitute any investment recommendation or advice. It should not be assumed that an investment in these securities or equities was or will be profitable. Due to rounding, the total may not be equal to 100%.