Preferred Stocks as a Credit-Safe Alternative to Bank Preferreds: Leveraging High-Credit-Rated Closed-End Fund Shares Like GDV

In an era where traditional bank preferreds face scrutiny due to sector-specific risks-such as regulatory pressures, interest rate volatility, and economic downturns-investors are increasingly seeking alternatives that balance yield with credit safety. Closed-end funds (CEFs), particularly those with high-credit-rated preferred shares, have emerged as compelling candidates. Among these, the Guggenheim Diversified Income Fund (GDV) stands out as a case study in leveraging diversified portfolios and robust credit quality to mitigate risk while maintaining competitive returns.

Performance and Cost Efficiency: GDV's Track Record

According to CEF Connect, GDV has delivered a year-to-date (YTD) total return of 18.66% as of October 31, 2025, significantly outperforming its net asset value (NAV) total return of 14.76% during the same period. This outperformance reflects strong market confidence in the fund's strategy, which includes a mix of income-generating securities and strategic leverage. Additionally, GDV's expense ratio of 1.52% as of December 31, 2024-comprising 0.99% in management fees and 0.27% in other expenses-positions it as a cost-efficient option compared to many bank-issued preferreds, which often carry higher administrative and compliance costs.

Credit Safety: Beyond the Fund's Ratings

While direct credit ratings for GDV itself remain elusive, a critical insight emerges from a Seeking Alpha analysis: the preferred stocks of closed-end funds like GDV are highlighted as having "the highest credit rating on exchange." This suggests that the fund's preferred shares are perceived as safer than traditional bank-issued counterparts, likely due to their structural advantages. Unlike bank preferreds, which are tied to the creditworthiness of a single institution, GDV's preferred shares derive their stability from a diversified portfolio of holdings. For instance, the fund's top positions include industry leaders such as Sony Group Corp. and Alphabet Inc., which, while not explicitly rated in the provided data, are generally considered investment-grade entities in the broader market according to Seeking Alpha commentary.

Diversification and Macro-Resilience

GDV's portfolio strategy further enhances its credit safety. As of September 30, 2025, the fund maintained a 9.1% allocation to cash and equivalents, providing liquidity to navigate market downturns according to Seeking Alpha commentary. This contrasts with bank preferreds, which often lack such buffers and are more susceptible to liquidity crises. Moreover, GDV's exposure to non-bank sectors-such as technology and media-reduces its vulnerability to sector-specific shocks. For example, while bank preferreds may struggle during periods of rising interest rates, GDV's holdings in companies like Warner Bros. Discovery and Sony Group Corp. benefit from trends like AI-driven content creation and global media consumption according to Seeking Alpha commentary.

A Comparative Edge: GDV vs. Bank Preferreds

The macroeconomic risks affecting both GDV and bank preferreds are similar, including inflationary pressures and regulatory shifts. However, GDV's structure inherently mitigates these risks. A Q3 2025 commentary on the Gabelli Equity Trust-a sister fund to GDV-notes that companies like O'Reilly Automotive (ORLY) are better positioned to handle supply chain challenges, illustrating how diversified CEFs can adapt to macroeconomic headwinds. In contrast, bank preferreds are often concentrated in institutions with limited operational flexibility during crises.

Conclusion: A Strategic Shift in Income Investing

For income-focused investors prioritizing credit safety, GDV exemplifies how closed-end funds can serve as a superior alternative to traditional bank preferreds. Its combination of high-credit-rated preferred shares, diversified holdings, and cost efficiency addresses the key pain points of bank-issued securities. While the absence of granular credit ratings for individual holdings remains a caveat, the fund's structural advantages and market performance underscore its role in a resilient income portfolio. As macroeconomic uncertainties persist, leveraging CEFs like GDV offers a pragmatic path to balancing yield and risk.