Financial advisors seeking income alternatives with defensive characteristics might find an answer in preferred securities—particularly when actively managed with the flexibility to navigate across the asset class.
Joseph Bozoyan, Portfolio Manager, Capital Appreciation at Manulife Investment Management, oversees the John Hancock Preferred Income ETF (ticker: JHPI), bringing three decades of experience to an asset class he describes as occupying a unique middle ground—one offering the structural benefits of bonds with select equity characteristics.
“They’re just another way for a company to finance operations like they issue senior bonds or common stocks,” Bozoyan tells The Wealth Advisor’s Scott Martin. “They occupy a different level in the company’s capital structure.”
What makes preferred securities compelling extends beyond their structural position. The securities carry credit ratings and have a stated par value like bonds, yet many pay qualified dividends—offering tax advantages typically associated with equities. Bozoyan notes that approximately 50% of JHPI’s portfolio generates qualified dividend income, creating tax efficiency alongside yield.
Why Companies Issue Preferreds
Understanding issuer motivations reveals why preferred securities as an asset class tend toward quality. Banks represent the dominant issuers, though their presence stems from regulatory necessity rather than financial weakness.
“Banks need to issue preferreds in the U.S. to meet certain regulatory requirements that hit certain capital ratios,” Bozoyan notes. Beyond regulatory compliance, companies favor preferreds because “they’re also a cheaper form of financing for companies as well. It’s cheaper to issue a preferred versus issuing a common stock.”
Rating agencies provide another incentive. Preferreds carry partial equity treatment from credit rating agencies, helping issuers maintain higher credit ratings while reducing overall debt servicing costs. The result: an asset class issued predominantly by investment-grade companies.
“On average, their credit ratings are triple B or investment grade,” Bozoyan says. “So, as a result of that, their default rates tend to be very, very small.”
Beyond low default rates, preferred securities issued by quality companies exhibit another reliability factor: low dividend deferral rates. Even when companies face financial pressure short of default, they can legally defer preferred dividend payments. With investment-grade issuers, however, deferral remains rare—providing more consistent income streams than credit quality alone might suggest. The combination of low defaults and low deferrals reinforces why preferreds can serve as a dependable income source, particularly when paired with the tax advantages many offer through qualified dividend treatment.
“That’s another positive attribute of owning preferreds,” Bozoyan says. “So, it can really fit in terms of people looking for income for their portfolios. Particularly, in some cases, they look at their high-yield exposure, and maybe some of that high-yield exposure can be shifted over to preferreds.”
Navigating Four Distinct Markets
JHPI’s approach differentiates from peers through the ability to invest across four distinct areas of the preferred market—institutional preferreds, retail preferreds, convertible preferreds, and European bank additional Tier 1 (AT1) securities (a type of contingent convertible, or CoCo, bond).
Institutional preferreds trade over the counter in $1,000 par increments. Most employ fixed-to-floating-rate structures, with coupons fixed for approximately five years before floating. Duration currently runs just over four years, offering relative interest rate protection.
Retail preferreds trade on exchanges in $25 par increments, featuring primarily fixed-for-life dividends, though some offer fixed-to-floating coupons. Duration extends to just over eight years, providing sensitivity to longer-term rate movements.
Convertible preferreds represent equity-linked securities tracking underlying company stock, typically converting to equity within three years. Duration stays under three years given the conversion timeline.
European bank AT1 CoCos round out the opportunity set, though Bozoyan focuses primarily on U.S. banks where the team’s in-house expertise concentrates.
“We’re one of the larger preferred managers globally, so we have these other portfolio managers as resources that help us manage the preferred portfolios,” he says. “We really have that in-house expertise that enables us to get some great opportunities out there.”
The Active Advantage
Few managers can invest across all preferred market segments. Most concentrate on a single area, potentially limiting flexibility to respond to changing market conditions. JHPI employs a top-down framework determining where opportunities appear most attractive across the preferred spectrum. The team adjusts positioning based on rate expectations, economic outlook, and relative value.
“For example, if we think rates are going to rise quickly, here’s when we want to invest more in institutional preferreds, which have a lower duration with that fixed-to-floating-rate coupon structure,” explains Bozoyan. “And more recently, when we thought their rates were going to come down over time, here’s where we’ve been focusing more on retail preferreds, which have a higher duration.”
The ability to shift between fixed and floating-rate structures, extend or shorten duration, and move across preferred types creates multiple levers for managing risk and seeking returns across market environments. “We have these different tools in our toolbox to help us invest in different preferreds, depending on what area of the business or what level of the business cycle we’re in,” Bozoyan says.
Sector Positioning: Banks and Beyond
Bank preferreds form the core of most preferred portfolios given regulatory issuance requirements. JHPI’s edge comes from dedicated in-house bank equity expertise.
“Part of our team is a group of people who manage over $2 billion in bank equities,” Bozoyan notes. “And that’s really important for us because banks tend to be the largest issuer in the preferred market.”
The bank equity team provides research depth particularly valuable for smaller regional bank issuers that receive limited Wall Street coverage. Fundamental analysis reveals opportunities competitors might overlook.
Bank fundamentals remain strong, Bozoyan notes. “Credit quality is very solid, and we’re not seeing much in the way of delinquencies at all in the banking space,” he observes. A steepening yield curve—with banks’ lending at higher long-term rates while paying lower short-term deposit costs—benefits margins.
Beyond banks, JHPI maintains significant overweight positioning in electric utilities, creating a defensive tilt unusual among preferred strategies.
“Utilities in the U.S. are regulated, and therefore their earnings and cash flows don’t fluctuate much at all with the general economic environment,” Bozoyan points out.
He identifies current utility fundamentals as among the strongest in his 30-year career covering the sector. Electricity demand is growing for the first time in years, driven by electric vehicles, domestic manufacturing reshoring, and artificial intelligence infrastructure requirements.
“Utilities in the U.S. are having to invest in generation and transmission, which results in transparent earnings and cash flow growth going out the next five to 10 years,” he adds.
The defensive characteristics don’t sacrifice returns. Bozoyan says that utilities have ranked among JHPI’s “better performing” sectors in recent years, demonstrating how active sector allocation can enhance risk-adjusted returns.
Portfolio Applications for Advisors
Where might JHPI fit within client portfolios? Bozoyan sees multiple use cases, though income generation remains the primary driver.
“Certainly, for an income strategy, for an advisor looking for income, this is a great place to look,” he suggests. The fund can substitute for high-yield bond exposure, offering comparable yields with higher credit quality and tax-advantaged income.
Preferred securities can also replace dividend equity positions, particularly when equity valuations appear stretched. Advisors obtain income with preferential claim on company assets relative to common stockholders.
The allocation bucket depends on advisor preference and client circumstances. Some treat preferreds as fixed income given structural similarities to bonds. Others classify the asset class within alternative income strategies.
“It kind of depends on the advisor,” Bozoyan acknowledges.
Timing Considerations
Beyond structural portfolio benefits, Bozoyan highlights current market conditions creating potentially attractive entry opportunities.
“Many of them are trading at discounts to par value,” he notes. Preferreds issued when rates were lower now trade below par after rate increases. “So, you have that capital appreciation potential so that positive conducts you to rates coming down over time.”
The discount-to-par dynamic addresses a historical criticism of preferreds—limited price appreciation when securities can be called at par. Current valuations may offer both income and potential capital gains as rates normalize.
Looking ahead, Bozoyan’s team expects rates to decline over time, though the path may prove gradual.
“I do think there’s pressure on the Fed to reduce rates on the short end,” he says. “But I think, because of the economic strength we might see next year or this year, the 10-year might be range bound.”
The outlook suggests a year of carry, where investors earn attractive yields without necessarily experiencing significant price appreciation. For income-focused advisors, the combination of 6% SEC yield, as of December 31, 2025, with investment-grade credit quality and tax efficiency remains compelling.
JHPI’s active management, broad preferred market access, and defensive sector positioning aim to deliver consistent income with capital preservation—making the fund worth consideration as advisors construct diversified income strategies for the year ahead.
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Additional Resources
- Contact Manulife John Hancock Investments
- Manulife John Hancock Investments ETFs
- JHPI Fact Sheet
- JHPI Summary Prospectus
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Disclosures
John Hancock is not affiliated with Wealth Advisor.
Ratings are from Moody’s, if available, and from Standard & Poor’s or Fitch, respectively, if not. When not available, internal ratings provided by the subadvisor are used. Ratings composition will change. Individual bonds are rated by the creditworthiness of their issuers; these ratings do not apply to the fund or its shares. U.S. government and agency obligations are backed by the full faith and credit of the U.S. government. All other bonds are rated on a scale from AAA (extremely strong financial security characteristics) down to CCC and below (having a very high degree of speculative characteristics). “Short-term investments and other,” if applicable, may include security or portfolio receivables, payables, and certain derivatives.
Duration measures the sensitivity of the price of bonds to a change in interest rates.
Investing involves risks, including the potential loss of principal. There is no guarantee that a fund’s investment strategy will be successful. Fixed-income investments are subject to interest-rate and credit risk; their value will normally decline as interest rates rise or if an issuer is unable or unwilling to make principal or interest payments. Preferred stock dividends are payable only if declared by the issuer’s board. Preferred stock may be subject to redemption provisions. Investments in higher-yielding, lower-rated securities involve additional risks as these securities include a higher risk of default and loss of principal. REITs may decline in value, just like direct ownership of real estate. Foreign investing, especially in emerging markets, has additional risks, such as currency and market volatility and political and social instability. The use of hedging and derivatives could produce disproportionate gains or losses and may increase costs. It’s possible that an active trading market for fund shares will not develop, which may hurt your ability to buy or sell fund shares, particularly in times of market stress. Trading securities actively can increase transaction costs, therefore lowering performance and taxable distributions. Liquidity–the extent to which a security may be sold or a derivative position closed without negatively affecting its market value, if at all–may be impaired by reduced trading volume, heightened volatility, rising interest rates, and other market conditions. A portfolio concentrated in one industry or sector that holds a limited number of securities may fluctuate mor than a diversified portfolio. Fund distributions generally depend on income from underlying investments and may vary or cease altogether in the future. Shares may trade at a premium or discount to their NAV in the secondary market. These variations may be greater when markets are volatile or subject to unusual conditions. Please see the fund’s prospectus for additional risks.
Clients should read and carefully consider a fund’s investment objectives, risks, charges, and expenses before investing. To request a prospectus or summary prospectus with this and other important information, call us at 800-225-6020, or visit us at jhinvestments.com/etf.
John Hancock ETFs are distributed by Foreside Fund Services, LLC in the United States, and are subadvised by Boston Partners, Dimensional Fund Advisors LP, Marathon Asset Management, or our affiliates Manulife Investment Management (US) LLC, and CQS (US) LLC. Foreside is not affiliated with John Hancock Investment Management Distributors LLC, Manulife Investment Management (US) LLC, CQS (US), LLC, Boston Partners, Dimensional Fund Advisors LP, or Marathon Asset Management.
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