Stock Analysis & Valuation John Hancock Preferred Income Fund II (HPF)

• Previous Close: $16.14
• Sector Valuation Confidence Level: High

Valuation method	Value, $	Upside, %
Artificial intelligence (AI)	58.26	261
Intrinsic value (DCF)	22.28	38
Graham-Dodd Method	5.98	-63
Graham Formula		n/a

Strategic Investment Analysis

Company Overview

John Hancock Preferred Income Fund II (NYSE: HPF) is a closed-end fixed income mutual fund managed by John Hancock Investment Management LLC, focusing on generating income through preferred securities and investment-grade bonds. Launched in 2002, the fund primarily invests in preferred stocks, convertible preferred securities, and high-quality fixed-income instruments, benchmarking against the Bank of America Merrill Lynch Hybrid Preferred Securities Index and Barclays U.S. Aggregate Bond Index. Operating in the Financial Services sector, HPF targets diversified sectors, offering investors exposure to stable income-generating assets with lower volatility compared to equities. With a market cap of approximately $339 million, HPF appeals to income-focused investors seeking tax-advantaged returns in a rising-rate environment. The fund’s strategy emphasizes capital preservation while delivering consistent dividends, making it a relevant option for fixed-income portfolios.

Investment Summary

John Hancock Preferred Income Fund II (HPF) presents an attractive option for income-seeking investors, given its focus on preferred securities and investment-grade bonds, which offer stable yields with moderate risk. The fund’s 0.711 beta indicates lower volatility relative to the broader market, appealing to conservative investors. However, its reliance on fixed-income securities exposes it to interest rate risk, particularly in a rising-rate environment. The fund’s $206.7 million debt load and modest cash position ($239,620) may constrain flexibility, though its strong net income ($49.5 million) and EPS ($2.30) suggest solid profitability. The $1.482 dividend per share underscores its income-generating capability, but investors should monitor credit quality and interest rate trends. Overall, HPF is suitable for those prioritizing income over growth, but macroeconomic shifts could impact performance.

Competitive Analysis

John Hancock Preferred Income Fund II (HPF) differentiates itself through a specialized focus on preferred securities and investment-grade bonds, offering a niche income stream with lower equity correlation. Its competitive advantage lies in John Hancock’s asset management expertise and the fund’s benchmark alignment with hybrid preferred and aggregate bond indices, ensuring disciplined risk-adjusted returns. However, the fund faces competition from broader fixed-income ETFs and mutual funds that provide similar exposure at lower fees. HPF’s closed-end structure may limit liquidity compared to open-end funds, though it can trade at premiums/discounts to NAV, creating opportunities for tactical investors. The fund’s sector diversification mitigates concentration risk, but its performance is tied to credit markets, making it sensitive to economic cycles. While its yield is competitive, passive alternatives like PFF (iShares Preferred ETF) may appeal to cost-conscious investors. HPF’s active management and focus on quality securities position it well for risk-averse income seekers, but it must navigate interest rate and credit spread risks to maintain outperformance.

Major Competitors

• iShares Preferred and Income Securities ETF (PFF): PFF is a passively managed ETF tracking the S&P U.S. Preferred Stock Index, offering broader liquidity and lower fees than HPF. Its $12B+ AUM and 0.46% expense ratio make it a cost-efficient alternative, but it lacks HPF’s active management and convertible securities focus. PFF’s performance is more correlated with broad preferred markets, while HPF’s hybrid approach may provide better risk-adjusted returns.
• Invesco Preferred ETF (PGX): PGX tracks the ICE BofA Core Plus Fixed Rate Preferred Securities Index, emphasizing fixed-rate preferreds. With $5.8B AUM, it rivals HPF in scale but has higher interest rate sensitivity. HPF’s inclusion of convertibles and investment-grade bonds diversifies its risk profile, though PGX’s lower expense ratio (0.50%) appeals to fee-sensitive investors.
• SPDR ICE Preferred Securities ETF (PSK): PSK focuses on investment-grade preferreds, mirroring HPF’s quality bias but with a passive strategy. Its $1.3B AUM and 0.45% fee compete with HPF’s active management edge. PSK’s tighter credit focus may reduce yield but enhance stability, whereas HPF’s convertible holdings offer upside potential.
• Nuveen Preferred and Income Term Fund (JPI): JPI is another closed-end fund with a term structure, targeting preferreds and corporate debt. Its $1.2B AUM and 3.9% yield compare to HPF’s 6.8% dividend, but JPI’s term mandate provides a defined exit, reducing perpetual discount risk. HPF’s broader sector mix may offer better diversification.