Unsuitability & Overconcentration May Lead to Unnecessary Investor Losses in Preferred Stocks
If you are an investor in preferred stocks or preferred stock funds, you may have suffered losses as the preferred-stock market had dropped almost 5% since its mid-Feb peak.
These stocks do carry some risk with them and they are not suitable for every investor. If you are wondering whether your investments were inappropriately recommended to you or your broker overconcentrated your portfolio with too many of them, contact our investor attorneys at Shepherd Smith Edwards and Kantas (SSEK Law Firm) today.
What Are Preferred Stocks?
This kind of stock is typically a hybrid with traits of both debt securities and equity. It usually pays fixed dividends or company profit distributions on a regular basis, offers higher yields than the yields of more traditional, fixed income securities, and tends to react to interest rate fluctuations.
While preferred stocks are not as risky as common stock, they carry more risk to them than bonds. They are popular among investors wanting higher income. However, they were hit hard during the 2008 economic crisis.
What Risks Are Involved With These Kind Of Stocks?
Below, we list some of the risks that investors need to be aware of when it comes to investing in preferred securities:
- With preferred stocks, your portfolio could end up heavily concentrated in the financial sector, including in certain financial firms.
- Preferred securities will often have a lower credit rating than unsecured, more senior bonds.
- They have long maturity periods of around 30 years or more. Some preferred stocks have no maturity date at all so and stay outstanding forever.
- While preferred stock is typically “callable,” meaning they can be retired before maturity at a certain price after a certain date, this is just an “option” for the issuer, and the price for the return may be lower than desired.
Last month, Barron’s reported on some of the preferred stock and preferred stock funds that recently experienced losses with that sector’s market drop. These included:
- iShares Preferred & Income Securities ETF (PFF)
- Nuveen Preferred & Income Opportunities Fund (JPC)
- JPMorgan’s (JPM) 4.75% preferred issue (JPM Pfd F)
- Morgan Stanley’s (MS) 4.875% Non-Cumulative Preferred Stock, Series L (MS PfD L)
- Wells Fargo’s (WFC) 4.75% preferred issue (WFC Pfd Z)
Stock Investment Fraud Law Firm
SSEK Law Firm represents investors throughout the US. Our broker fraud lawyers are available to meet with you during your free case consultation by teleconference or video call to discuss your financial losses and help you determine whether you have grounds for an investor claim.
Over the years, we have helped thousands to recover many millions of dollars in losses caused by the fraudulent or negligent actions of brokers and their firms. Contact us today.