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Portfolio Managers
Jeff Herold

Jeff Herold

Lead Manager

Dax Letham - JZechner

Dax Letham


Ian Claire - JZechner

Ian Clare


For institutional investors seeking both lower volatility and better yields in today’s low-interest rate environment.

At J Zechner Associates, preferred shares have played a key role for years in our fixed income performance.

Over the last decade, institutional interest in preferred shares has grown significantly, with good reason. Preferred shares offer three significant advantages when compared with traditional fixed-income investments:

  • Significantly higher yields than comparable corporate bonds;
  • Very low or no correlation with bonds; and
  • Lower historical volatility in most periods than either Canadian equities or bonds.

This combination of higher returns, lower correlation and low volatility make a compelling argument for adding preferred shares to instituional portfolios. In our low interest rate environment — where even modest yields are difficult to achieve without taking excessive risk — the incremental yields of preferred shares are compelling.

That being said, finding value in the Canadian preferred share market can be challenging: the preferred share market is inefficient with unique characteristics, and broad indices can be concentrated and fraught with danger; rigorous active management is essential to success. Our team brings a wealth of knowledge and discipline which, alongside our proprietary research, has resulted in a track record of success. Our preferred share management is available as a standalone portfolio, a pooled fund, or clients can get exposure through our broader fixed income management.

Our disciplined process is supported by our skill in credit analysis; having long-studied almost every preferred share issuer’s corporate bond offerings. Preferred shares are hybrid securities, having characteristics of both common shares and bonds; our credit savvy has helped clients avoid losses from surprise rating downgrades and suspended dividend payments.

Key elements of our screening and investment process include:

  • independent research and analysis
  • we do not rely on credit ratings
  • equity analysis plays a limited role; risk/return profile is closer to bonds
  • minimal emphasis on duration, as it has little predictive or risk management value
  • no more than 5% concentration in single issuer; depsite the reality that with multiple offerings, issuers such as Royal Bank and Enbridge often comprise closer to 10% of the index
  • top-down and bottom-up synthesis
  • technical focus on yield, dividend rate, reset spread, next reset/redemption date and the dividend rate floor or minimum

We tailor each institutional client’s portfolio to their investment portfolio guidelines, with daily screening.

If you’re interested in learning more about our institutional preferred share management, please reach out and we will be happy to start a conversation.