Convertible bonds and preferred stocks have delivered similar returns in the last 12 months, but investors are favouring the steadier returns guaranteed by preferred stocks over their relatively more volatile convertible peers.
Warren Buffett's various preferred stock loans made to various blue chip firms during the depths of the financial crisis turned out to be some of his most infamous investments, as these crisis era investments provided the investor with years of steady dividend income often capped out with a redemption premium. This high profile endorsement for the asset class has seen a slew of budding Buffetts plough steadily larger piles of cash into preferred stock ETFs. The AUM managed by the seven US listed domestically focused preferred stock funds has swelled by over 12 times since 2008 to hit $27.2bn.
The surging AUM mostly occurred since the start of 2015 as the asset class registered $10bn plus of inflows.…