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Duration of Fixed Income


2023 Duration of Fixed and Hybrid Income Funds Review

New York - November 27, 2023 ~ Although most preferred stocks have no maturity date, their interest rate sensitivity is similar to asset classes with medium-term maturities. Consequently, preferred stocks do not have significantly more interest rate sensitivity than fixed-income investments. To measure interest rate sensitivity, we rely on duration. Duration is a measurement of a bond’s interest rate risk that considers a bond’s maturity, yield, coupon, and call features. The higher the duration, the higher the interest rate risk. We believe investors should consider the amount of exposure to variable and floating rate coupons when deciding to allocate to fixed and hybrid income funds. Currently, many investors can likely achieve portfolio durations in line with their investment objectives by allocating to preferred stock ETFs that have significant exposure to variable and floating rate coupons.


For review purposes within the preferred stock ETF marketplace, we considered the iShares Preferred and Income Securities ETF (PFF) which is the largest ETF in the space. The duration of PFF is shown for illustrative purposes below, with the underlying components also displayed:


2023 Duration of PFF Income Preferred Stock ETF

For investors seeking to invest in fixed-income products with a medium-term duration, we believe preferred stock funds should be considered due to their perpetual nature. We believe active preferred stock managers can timely manage the duration of the portfolio, which can provide advantages to passively managed preferred stock funds.


Fixed Income ETF Funds with Medium Term Duration



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