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Institutional Preferred Issuance Is Expected to Continue its Upward Trajectory
Moody’s update levels the playing field for preferreds. Discover why institutional $1,000 par securities are surging in issuance and investor interest.
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The preferred securities market has experienced a shift amongst its two largest segments; retail preferreds ($25 par) and institutional preferreds ($1,000 par). Last year, Moody’s aligned their equity credit assignment methodology for preferred securities to match that of S&P and Fitch, putting both segments on the same playing field from a liability management standpoint.¹
Subordinated debt coupons, a type of institutional preferred, are considered tax deductible for the issuer whereas retail preferred equity dividends are not.² The liquid U.S. capital securities market has seen its share of institutional preferred securities increase from 54% to 68% and this methodology update may enable further issuance growth.
$1,000 pars are typically sought after by institutional investors since they are traded over the counter and less influenced by more volatile, retail investor flows.
Source: ICE Data Services, LLC measured yearly from 2017 through 05/27/2025. The U.S. Capital Securities Market is represented by the ICE BofA US All Capital Securities Index.
Key Takeaways
- Issuance in the institutional preferred securities market is expected to grow amid favorable capital management trends.
- Institutional preferred securities demand is sought after for its potentially lower volatility characteristics.
- Preferred securities investors may want to consider if they have palatable exposure to the growing, $1,000 par segment of the market.
Explore this topic further and how institutional preferreds may be an enticing addition to a multi-asset portfolio. Read the full AAM ETF Monthly Insights here.
Sources
¹ Debevoise & Plimpton (2024, August 5) In the Moody’s for Subordinated Debt Securities: Methodology Changes for Awarding Equity Credit
² Ibid.
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Disclosures
Investing involves risk, including the possible loss of principal.
ICE BofA US All Capital Securities Index tracks the performance of a specific type of fixed-income security: fixed-rate, U.S. dollar-denominated hybrid corporate and preferred securities that are publicly issued in the U.S. domestic market. These securities are often referred to as "capital securities" and are a subset of the broader ICE BofA US Corporate Index. Subordinated debt coupons refer to the interest payments made on subordinated debt, which is a type of debt that ranks lower in priority for repayment compared to senior debt in the event of a company's liquidation or bankruptcy.
Any tax or legal information provided is a summary of our understanding and interpretation of some of the current income tax regulations and is not exhaustive. Investors must consult their tax professional or legal counsel for advice and information concerning their particular situation. Neither the Fund nor any of its representatives may give legal or tax advice.
AAM offers a suite of innovative Exchange Traded Funds (ETFs) to meet the ongoing needs of our clients. In addition to the benefits of the ETF wrapper – diversification, transparency, low-cost, trading flexibility and tax-efficiency – our practical ETF solutions focus on helping investors meet their cash-flow and capital appreciation goals. For more information, please contact your AAM Representative. You can also call us at 866.606.7220 or visit https://www.aamlive.com/ETF.
AAM ETFs are distributed by Quasar Distributors, LLC. Quasar and AAM are not affiliated.
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