Cohen & Steers Capital Management Inc. joined the chorus today of investment advisors singing the praises of alternative investments, namely preferred securities, in a press conference held in their midtown Manhattan offices.

The analysts pointed to their four real estate funds and their nearly three-year-old Preferred Securities and Income Fund (CPXAX), which returned 22.04 percent in 2012, and is set to do well because big-bank issuers have taken advantage of the securities. Unlike corporate bonds, preferred securities count toward, instead of against, the banks' tier one capital requirements.

“There's very high interest in the asset class,” says William Scapell, CFA, senior vice president and director of fixed income and portfolio manager for the preferred securities portfolios. Although the fund's inception only dates to May 2010, Scapell has managed the instruments in separate and institutional accounts and strategies since 2003. Institutional investors usually hold the securities long term, using them in asset/liability strategies, he says. Corporate bonds are returning about 2.8 percent today, he says, versus preferreds, which are returning 6.1 percent.

The portfolio's largest holdings by market value are JP Morgan Chase & Co, AIG, Centaur Funding Corp., Wells Fargo & Co. and HSBC Capital Funding. The expense ratio for the CPXAX A Shares, with a $1,000 initial minimum investment, has a maximum 3.75 percent sales charge. But the institutional shares (CPXIX), with a $100,000 minimum (which can be aggregated by brokers), has a net expense ratio of 0.75 percent. About 65 percent of the fund is comprised of triple- and double-B-rated securities.

Among the other four funds, Real Assets Fund (RAPAX) holds a combination of global real estate securities, including Simon Property Group; natural resource equities, such as BHP Billiton PLC and Rio Tinto; and commodities, including Gold Bullion Swap and WTI Crude Oil Future. Just one year old, its A Shares had the poorest return of the group, -2.92 after sales charges.

Only two U.S. firms offer mutual funds that invest in emerging markets real estate: Cohen & Steers and Alpine. Cohen & Steers Emerging Markets Real Estate Fund (APFAX) invests in securities issued by emerging markets real estate companies and other investments. It has a three-year return of 9.35 percent, or 7.69 percent after a 4.5 percent maximum sales charge.  The class A shares of the fund, launched July 31, 2006, have not met their benchmark, although it came close in 2012, reaching 39.69 percent compared with a blended FTSE benchmark's return of 42.02 percent.

The firm's Global Realty Shares fund (A shares: CSFAX) headed by portfolio manager Jon Cheigh, dates to September 30, 2004, and returned 25.56 percent last year. The fund aims to invest in real estate-related companies, including retail home and office suppliers, residential and industrial companies, mainly in the U.S. Currently, portfolio manager Jason Yablon says he expects the single-family housing recovery to have an impact on these industries. Specifically, he estimates a 60 percent growth in kitchen equipment and dry wall. He's looking at self-storage providers, too, which benefit from “churning in the housing markets.”  

The fourth, Cohen & Steers Realty Shares (CSRSX), is U.S. based and its flagship fund, returning an annual three-year average of 16.03 percent, with a 1.03 percent expense ratio. Its holdings are more in the Mid-Atlantic and South, and its largest holding is Simon Property Group, with an 11.7 percent market value.

“U.S. REITS have improved their balance sheets,” says Yigal D. Jhirad, senior vice president and portfolio manager of the Real Assets Fund. “We want to buy things that have been beaten up, but at the right time.”