PDT: A Not-For-Everyone Preferreds CEF

A member on the service mentioned the John Hancock Premium Dividend Fund (PDT) so it’s worth highlighting some of the key points that come to mind.

PDT is in the preferreds sector though, unusually for a preferred CEF, it holds some common stocks and corporate bonds as well. Ultimately, what people think of the fund depends on what they think of the allocation profile. A third of its portfolio in common stocks – in utilities and energy as well as some corporate bonds. The upshot is that the fund’s volatility is going to be higher than the broader sector and income is going to be lower. The fund has the highest distribution rate in the preferreds sector but the lowest covered yield.

The historic NAV return is on the lower end over the past 5y and roughly in line with the sector over the past 10y. This probably has to do with the drag that the energy stocks exerted over the last few years.

The fund’s risk-adjusted performance (what we call Alpha) is well below the average due to middling returns and high volatility. Its COVID Resilience, which is a measure of NAV performance from Feb to Aug of 2020 (when credit markets retraced their drops), highlights that the fund is relatively fragile and is not for weak hands.

Ultimately, investors who like to keep an eye on drawdowns and who like to squeeze as much yield as possible from their capital are not going to be excited by PDT.

Thanks for reading.

Check out more timely commentary as well as Income Portfolios and interactive Investor Tools at Systematic Income.

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