Stock Analysis & Valuation John Hancock Preferred Income Fund (HPI)

• Previous Close: $16.21
• Sector Valuation Confidence Level: High

Valuation method	Value, $	Upside, %
Artificial intelligence (AI)	61.02	276
Intrinsic value (DCF)	21.91	35
Graham-Dodd Method	6.82	-58
Graham Formula		n/a

Strategic Investment Analysis

Company Overview

John Hancock Preferred Income Fund (HPI) is a closed-end balanced mutual fund managed by John Hancock Investment Management LLC, focusing on generating income through preferred securities and investment-grade fixed-income assets. Launched in 2002, HPI invests primarily 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. The fund operates in the U.S. financial markets, targeting diversified sectors to provide stable returns with lower volatility. With a market cap of approximately $421 million, HPI appeals to income-focused investors seeking tax-advantaged distributions. Its strategy emphasizes capital preservation while delivering competitive yields, making it a relevant player in the asset management-income sector. The fund’s disciplined approach to credit quality and sector diversification positions it as a resilient option in fluctuating interest rate environments.

Investment Summary

John Hancock Preferred Income Fund (HPI) offers an attractive yield-focused investment opportunity, with a dividend yield of ~6.4% (based on a $1.482 annual dividend and recent share price). The fund’s diversified portfolio of preferred securities and investment-grade bonds provides stability, supported by a low beta (0.836), indicating lower market volatility. However, risks include interest rate sensitivity, as rising rates could pressure fixed-income valuations, and leverage exposure (total debt of $257M against $389K in cash). The fund’s net income of $61.2M and positive operating cash flow ($37.1M) suggest sustainable distributions, but investors should monitor credit risk in its holdings. HPI suits income-seeking investors but may underperform in aggressive equity rallies.

Competitive Analysis

HPI’s competitive advantage lies in its niche focus on preferred securities, a market segment less saturated than traditional equity or corporate bond funds. Its dual benchmark strategy (hybrid preferred securities and aggregate bonds) allows flexibility in capturing yield while mitigating risk. The fund’s management by John Hancock, a subsidiary of Manulife Financial, provides institutional-grade research and credit analysis, enhancing security selection. However, HPI faces competition from larger, more diversified income funds and ETFs offering lower fees. Its closed-end structure introduces premium/discount volatility versus NAV, a disadvantage compared to open-end alternatives. The fund’s leverage (~61% of market cap) amplifies returns but also risk, differentiating it from unlevered peers. In a low-rate environment, HPI’s yield focus is compelling, but its small size ($421M AUM) limits economies of scale versus giants like PIMCO or BlackRock.

Major Competitors

• iShares Preferred and Income Securities ETF (PFF): PFF is a dominant ETF with ~$12B AUM, offering broad exposure to preferred stocks at lower fees (0.46% expense ratio). Its liquidity and scale make it a preferred choice for cost-conscious investors, but it lacks HPI’s active management and leverage-enhanced yields.
• Invesco Preferred ETF (PGX): PGX tracks the ICE BofA Core Plus Fixed Rate Preferred Securities Index, emphasizing rate-resilient preferreds. With $5.8B AUM, it competes on diversification but underperforms HPI in yield generation due to no leverage.
• Nuveen Preferred & Income Opportunities Fund (JPC): JPC is a closed-end peer with $1.3B AUM, blending preferreds and corporate bonds. It offers higher leverage (35% vs. HPI’s ~61%) and a similar yield, but its broader mandate dilutes preferred-focused returns.
• SPDR ICE Preferred Securities ETF (PSK): PSK provides targeted exposure to investment-grade preferreds with a 0.45% fee. Its passive strategy lacks HPI’s active credit selection, but its $1.4B AUM ensures tight spreads and liquidity.