Manulife Investment Management has launched a Preferred Securities Income Fund, a product that invests in instruments with the capital growth features of equities and the income streams of bonds.
It is a feeder fund that will allocate at least 95% of its net asset value to the $392m Manulife Global Fund – Preferred Securities Income Fund (the “target fund”), managed by US-based Joseph Bozoyan and Bradley Lutz, according to a press statement by Manulife IM.
The target fund buys preferred securities issued by companies that are defensive in nature, such as banks, utilities, and REITs, which are typically large and highly regulated organisations with stable cash flows. Although it is mandated to invest a minimum of 70% of assets in preference shares, the fund has the flexibility to invest its remaining assets in other debt securities and cash, said the statement.
Preferred securities are ranked between senior bonds and common stocks: in the event of corporate financial distress or a bankruptcy, a company’s preferred securities are senior to common stock but subordinated to bonds.
They are sometimes broadly categorised into preferred bonds and preferred stocks. Preferred bonds have similar features to fixed income securities, such as regular interest payment, maturity dates and credit ratings, while preferred stocks generally offer fixed dividends that are unaffected by the company’s profits and paid before dividends for common stocks.
“Cyclically, preferred securities have experienced a sell-off disproportionate to their underlying fundamentals, creating attractive entry points for active managers. Structurally, the inherent properties of this asset class help position it well moving forward,” said Jason Chong, Manulife IM’s Malaysia CEO, in the statement.
Manulife IM manages $4.9bn in preferred securities as at 30 June 2020, according to the statement.
The target fund’s biggest allocations are to the electrical, insurance and banking sectors, and its top holdings include preference shares issued by DTE Energy, Centrepoint Energy and Softbank; almost three-quarters of the portfolio is weighted to US securities, according to the latest fund factsheet (30 September 2020).
The average coupon of the Luxembourg-domiciled fund’s holdings is 6.41% and the average credit rating is BBB- (which is investment grade), the factsheet shows.
Manulife IM declined to provide further details about the feeder fund, such as the marketing period and process, the income distribution frequency of the fund or whether investors will be able to access the product through the online investment platform, “iFunds”, it launched in Malaysia last week.
The platform enables users to select, manage and track their Manulife unit trust funds online. It screens for appropriate funds based on the user’s investment and risk profile and allows them to review the selection by filtering various fund metrics that best meet their own investment objectives.
It also provides up-to-date information on the user’s Manulife funds portfolio, performance, asset allocations and transaction history.
Manulife IM offers 58 unit trust and private retirement scheme funds to investors in Malaysia, according to the statement. It is the fifth largest fund manager in Malaysia, managing MYR 6bn ($1.44bn) in assets, excluding money market funds, data from Morningstar Direct shows.
Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation. As of 30 June 2020, it held CAD$900bn ($660bn) in AUM, according to the press statement.