The public perception is that the value of fixed income securities goes down when interest rates rise.
In a sense, this is true, but how it get reflected in the marketplace is different than what the common “retail” perception is. A better way of phrasing this is that the value of fixed income securities go lower when the there is a perception of interest rates rising.
Even though the whole planet knows that the Bank of Canada overnight rate target is 0.25%, the whole world also knows that this will increase by an amount coming June. This expectation has already been baked into the marketplace, and thus in most circumstances it should be baked into the prices of fixed income securities.
Reading the comments on some Garth Turner articles, where Turner is generally pushing preferred shares over GICs, readers are giving “blowback” stating that the price of those securities will drop when rates rise.
In the eyes of the marketplace, rates are going to rise. You can see this in the 5-year Canadian bond rate.
The question is whether the market prices for preferred securities is going to reflect this or not. In any market, you have to ask yourself about the participants, and a lot of preferred issues are dominated by retail traders. In this event, and assuming retail traders think prices are going to go down because of a flawed notion of a price impact with a rate increase, it would suggest there is a dislocation of information that can be exploited.
Preferred shares require a bit extra research than standard equities or bonds simply because they contain varying provisions which gives the holders and company certain rights that have dramatic effects on their risk profile.
Also, the intent of owning preferred shares is to provide income, rather than capital appreciation and this should always be taken into consideration – it is an alternative to putting money in a savings account, rather than a replacement for an equity (growth) component of a portfolio.