In our follow-up article focusing on the John Hancock Preferred Income Fund (HPI), we would like to update our readers on what has been going on in the power and telecommunication industries after the outbreak of the COVID-19 pandemic earlier this year. This CEF has continued to recuperate from its market bottom in late March 2020; however, the market price is still down around 7% year to date. Communications services holdings have been the biggest contributor to the overall Fund’s performance in FY 20, while energy holdings have been the biggest contractor. Lockdown restrictions have put into jeopardy the demand for commercial and industrial power, while the demand for data and residential power has been robust, as people work from home and spend more time at home. Surprisingly, a monthly distribution payment of $0.1237 per share has remained steady so far in 2020, even though the Fund has faced almost a 60% drop in market price during the peak of the coronavirus crisis in late March 2020. In our view, the key bullish catalyst is the defensive structure of this fund as we anticipate that utilities and communication services industries are well-positioned to capitalize on the economic recovery after the end of the COVID-19 pandemic. In addition, the low-interest-rate environment should persist over the next couple of quarters, which supports the demand for preferred securities over risk-free assets.
The COVID-19 impact on Utilities and Communication Services
Top 10 Holdings (as of 08/31/2020)
(Source: John Hancock)
The fund has maintained its selection of top 10 issuers pretty much the same after our first analysis in June here. However, the exposure to the top 10 holdings has been reduced from 57.7% to 49.1% as part of portfolio de-leveraging. In addition, the fund has maintained a very high share of non-investment grade securities,