Stock Analysis & Valuation John Hancock Preferred Income Fund III (HPS)

• Previous Close: $14.68
• Sector Valuation Confidence Level: High

Valuation method	Value, $	Upside, %
Artificial intelligence (AI)	56.50	285
Intrinsic value (DCF)	20.62	40
Graham-Dodd Method	5.48	-63
Graham Formula		n/a

Strategic Investment Analysis

Company Overview

John Hancock Preferred Income Fund III (NYSE: HPS) is a closed-end fixed-income mutual fund managed by John Hancock Investment Management LLC, focusing on high-quality preferred securities and other fixed-income instruments in the U.S. market. Launched in 2003, the fund targets income-seeking investors by investing primarily in investment-grade preferred securities across diversified sectors, benchmarked against the Bank of America Merrill Lynch Hybrid Preferred Securities Index and the Barclays U.S. Aggregate Bond Index. With a market cap of approximately $454 million, HPS provides exposure to stable income streams while maintaining a lower-risk profile compared to equity-focused funds. Its strategy emphasizes capital preservation and consistent dividend payouts, making it a compelling option for conservative investors in the financial services sector. The fund’s performance is closely tied to interest rate movements and credit market conditions, positioning it as a strategic holding in income-focused portfolios.

Investment Summary

John Hancock Preferred Income Fund III (HPS) offers investors a stable income stream through its focus on investment-grade preferred securities, supported by a solid track record of dividend distributions ($1.32 per share). The fund’s low beta (0.745) suggests relative resilience to market volatility, appealing to risk-averse investors. However, its performance is sensitive to interest rate fluctuations, and its leveraged position ($274.3M in debt) could amplify risks in a rising-rate environment. With a strong net income of $65.5M and an EPS of $2.05, HPS demonstrates profitability, but its narrow focus on preferred securities limits diversification. Investors should weigh its income stability against potential interest rate and credit risks.

Competitive Analysis

John Hancock Preferred Income Fund III (HPS) differentiates itself through its specialized focus on investment-grade preferred securities, offering a niche income solution within the fixed-income asset management space. Its competitive advantage lies in its disciplined credit selection and benchmarking against hybrid preferred indices, which helps mitigate downside risk. However, its closed-end structure and leverage introduce liquidity and interest rate sensitivity risks not faced by open-end peers. The fund’s reliance on preferred securities—a smaller asset class—limits its ability to compete with broader fixed-income funds that include corporate bonds or government securities. While its management by John Hancock adds credibility, its performance is highly correlated with the health of the financial sector, given preferred securities’ dominance in banking and insurance issuers. Competitors with more diversified fixed-income strategies may offer better risk-adjusted returns in volatile markets.

Major Competitors

• iShares Preferred and Income Securities ETF (PFF): PFF is a larger, more liquid ETF offering diversified exposure to preferred securities, with lower fees compared to HPS. However, it lacks active management and may underperform in credit selection. Its open-end structure provides flexibility but less yield stability than HPS’s closed-end approach.
• Invesco Preferred ETF (PGX): PGX tracks a broad preferred securities index, providing similar exposure to HPS but with passive management. It offers lower expenses but may lag in risk-adjusted returns during market stress. Its liquidity advantage appeals to short-term investors, whereas HPS targets long-term income holders.
• John Hancock Preferred Income Fund (HPF): HPF, a sister fund to HPS, follows a nearly identical strategy but with slight variations in portfolio composition. Both funds share management expertise, but HPF’s smaller size may lead to marginally higher volatility. Investors may choose based on yield differentials or leverage ratios.
• Nuveen Preferred and Income Term Fund (JPI): JPI combines preferred securities with a defined term structure, offering potential capital appreciation. It competes with HPS in yield generation but carries additional complexity due to its term maturity feature. HPS’s perpetual structure may appeal to those seeking uninterrupted income.