Cannon Asset Managers: Why preference shares remain an attractive asset class in 2019

In a year marked by economic uncertainty and market volatility, preference shares emerged as a shining star in the investment landscape, outperforming traditional asset classes and delivering solid returns to investors. Preference shares, often overlooked by many investors, offer a unique value proposition with high dividend yields linked to the prime interest rate. Samantha Steyn, Chief Investment Officer at Cannon Asset Managers, shed light on the appeal of preference shares in a recent interview on CNBC Africa. Steyn highlighted the exceptional performance of preference shares in 2018, with a remarkable return of 15% in contrast to negative returns in property and equity markets. The uncorrelated nature of preference shares' returns to other asset classes makes them an attractive option for investors seeking diversification and stable income streams. With bond and property markets facing heightened risk, Cannon Asset Managers took a strategic approach to increase their allocation to preference shares within their portfolio. Steyn emphasized the resilience and income-generating potential of preference shares, presenting them as a viable investment alternative in the current market environment. Looking ahead to 2019, Steyn expressed optimism about the prospects for preference shares, citing their high dividend yield and potential for total return. While acknowledging the impact of underlying share price movements on total returns, Steyn underlined the appeal of preference shares' dividend streams amidst market uncertainties. In terms of portfolio diversification, Cannon Asset Managers advocated for a balanced approach with a mix of equities, bonds, property, and preference shares. Steyn recommended overweighting preference shares to enhance diversification and potentially reduce exposure to bonds. Furthermore, Steyn emphasized the importance of selecting high-quality preference shares to mitigate risks associated with credit quality and liquidity. By focusing on top-tier bank and corporate preferences, Cannon Asset Managers aimed to optimize risk-adjusted returns and uphold their commitment to prudent investment practices. As investors navigate through a challenging investment landscape, preference shares offer a beacon of stability and income generation. With a strategic allocation and a discerning investment approach, investors can unlock the full potential of preference shares as a valuable asset class in their portfolios.