Cohen & Steers is to launch the Cohen & Steers SICAV Global Preferred Securities Fund as part of its Luxembourg UCITS platform on 15 May 2017.
Cohen & Steers has been investing in the preferreds market for more than a decade; its US-based Cohen & Steers Preferred Securities and Income Fund is the largest actively managed preferred securities fund in the world.
“The launch of the fund is the latest step in Cohen & Steers’ commitment to bringing our core competencies in alternative income and real assets to European and other investors worldwide,” says Robert Steers, the firm’s chief executive officer. “With the outlook for fixed income uncertain, demand for alternative income strategies is rising and the Fund offers investors a distinctive solution to meet their portfolio needs.”
Preferred securities – also known as capital securities or hybrids – act like bonds, paying a fixed or floating rate of income. However, they are actually a form of equity for issuers and lie between common stock and senior debt in a company’s capital structure. A USD900 billion global market, preferred securities are generally issued by large companies with relatively stable cash flows, such as banks, insurance companies and utilities. They offer attractive yields in the current high-grade fixed income market, from sectors that are generally less represented in other fixed income strategies, potentially helping to improve portfolio efficiency.
“After a 35-year bull market in bonds, investors must now contend with two challenges: how to earn income with yields still hovering near historic lows, and how to protect against a rising interest-rate environment,” says William Scapell, the fund’s lead manager.
The Cohen & Steers SICAV Global Preferred Securities Fund aims to offer a unique solution to both of these issues.
“Based on expectations of rising rates globally, our focus is primarily on attractive income opportunities in securities with lower durations, which have been historically less sensitive to changes in interest rates. As we have often seen, high income and wider credit spreads can have a smoothing effect on total returns during periods of volatility,” Scapell adds.
Preferreds are particularly compelling in the current environment due to improving fundamentals for banks and insurance companies. Stricter banking regulations since the financial crisis have strengthened balance sheets, while a steepening yield curve may boost their earnings power, improve credit fundamentals and lead to narrower yield spreads.
The Cohen & Steers SICAV Global Preferred Securities Fund, a sub-fund of the firm’s existing Cohen & Steers Luxembourg UCITS platform, will seek to provide high current income and capital appreciation by investing in a global portfolio of retail exchange-listed and institutional over-the-counter preferred and debt securities.