Select High Yield Preferreds Remain Opportunistically Priced

Core Insights - The investment landscape for preferred securities is evolving, with some securities showing potential for capital appreciation and others offering high current yields [1][2] Changes in Fixed-Income Environment - The yield curve is uninverting, and the Fed Funds rate has been cut by 75 basis points, with expectations for further cuts [3] - Many formerly fixed-rate preferreds are transitioning to floating rates, impacting their yield profiles [3][4] - The perceived neutral Fed Funds rate has increased to a range of 3%-3.5% from the previous 2%-2.5% [3] Performance of REIT Preferreds - REIT preferred prices, represented by the Virtus InfraCap U.S. Preferred Stock ETF (PFFA), have increased approximately 20% over the past year [5] - Many previously identified REIT preferreds with substantial upside now have a flatter outlook, trading around their par value of $25 [6][5] Specific Investment Opportunities - PennyMac Mortgage Investment Trust (PMT) has preferred shares that remain deeply discounted, with potential for higher yields if they convert to floating rates [9][11] - Arbor Realty Trust, Inc. (ABR) offers discounted preferreds with solid current yields and capital appreciation potential, particularly ABR-F, which has a significant spread over SOFR [13][15][17] - Chimera Investment Corporation (CIM) preferreds have a liquidation preference that exceeds their par value due to accrued dividends, making them potentially profitable even if redeemed [21][23] Mispricing and Yield Opportunities - The market has overlooked many REIT preferreds, leading to mispricing and opportunities for yields exceeding 10% without excessive risk [27][28] - The variable rate conversion features of these preferreds are often misunderstood, creating entry points that may correct toward fair value as conversion dates approach [27]