PT  - JOURNAL ARTICLE
AU  - Anthony L. Loviscek
TI  - Should Preferred Stock Funds Be Included in Mutual<br/>Fund Portfolios?
AID  - 10.3905/jwm.2017.20.1.083
DP  - 2017 Apr 30
TA  - The Journal of Wealth Management
PG  - 83--96
VI  - 20
IP  - 1
4099  - https://pm-research.com/content/20/1/83.short
4100  - https://pm-research.com/content/20/1/83.full
AB  - Should preferred stock funds, despite their lack of attention from Wall Street, academia, and the financial media, be preferred in mutual fund portfolios? To address this question, we construct mean–variance-efficient portfolios from U.S.-centric mutual funds that represent common stocks, Treasury bills, Treasury bonds, corporate bonds, real estate investment trusts, and preferred stocks to determine whether a preferred stock fund meets the standards for inclusion in mutual fund portfolios. We also conduct robustness checks on the results and perform out-of-sample tests on portfolio performance with and without the preferred fund. Overall, the evidence indicates that a preferred stock fund allocation in the range of 5%–15% can reduce portfolio risk while at least preserving portfolio return, providing a cushion for portfolio managers of balanced funds and for income-seeking investors.TOPICS: Mutual funds/passive investing/indexing, portfolio construction, statistical methods, performance measurement