It hasn't been a great time for preferred securities. Yet Bank of America sees opportunity in some areas of the market. The ICE BofA Core Plus Fixed Rate Preferred Securities index, which has an effective yield of 6.71%, has seen a total return of -7% in the last six months. The higher-for-longer interest rate environment weighed on the space in the third quarter, Bank of America said in a note earlier this month.
"Having said that, we think that certain names and pockets of the market may offer relative value," Youngworth said. Preferreds have characteristics of both bonds and equities. They trade on exchanges like stocks but have a face value and pay dividends like bonds. Also similar to bonds, when the value of the preferred security goes down, yields rise. About three-quarters of the securities are issued by financial firms.