Cohen & Steers' High-Yield Income Funds: Navigating the Low-Yield Maze

In an era where central banks have kept interest rates near historic lows for over a decade, the quest for income has become a defining challenge for investors. Traditional fixed-income assets, once reliable sources of yield, now offer returns that barely outpace inflation. Against this backdrop, Cohen & Steers' high-yield income funds have emerged as a compelling alternative, leveraging preferred securities and high-yield bonds to generate stable cash flows. This analysis evaluates the firm's strategies, performance, and risks in a low-yield environment, drawing on recent data and market dynamics.

A Strategy Built for Low Rates

Cohen & Steers' approach hinges on the unique characteristics of preferred securities and high-yield bonds. Preferred securities, often issued by financial institutions and stable-cash-flow sectors, offer higher yields than similarly rated bonds due to their subordinated claims and structural complexity, as evidenced by the firm's Low Duration Preferred and Income Fund. The firm's Low Duration Preferred and Income Fund, for instance, targets a weighted-average duration of three years or less, minimizing interest-rate risk while maintaining access to a $1 trillion over-the-counter market for low-duration preferred securities. This low-duration focus allows the fund to adapt swiftly to shifting economic conditions, a critical advantage in an environment where rate hikes remain a possibility.

The firm also pairs preferred securities with high-yield bonds to diversify income sources. While high-yield bonds carry higher credit risk, their volatility is offset by the relative stability of preferreds, which are often issued by highly regulated industries, according to a Cohen & Steers analysis. This hybrid strategy not only enhances yield but also reduces exposure to market stress, as evidenced by the Limited Duration Preferred and Income Fund's 8.04% total return at net asset value in the six months ending June 2024-significantly outperforming its benchmark, as shown in the SEC filing.

Performance in a Low-Yield World

Recent performance data underscores the resilience of Cohen & Steers' funds. As of Q2 2025, the firm's assets under management (AUM) grew to $88.9 billion, driven by $4.4 billion in market appreciation and a shift from net outflows in H1 2024 to modest inflows in H1 2025, according to the Q2 2025 earnings report. This growth reflects investor confidence in the firm's ability to deliver returns amid low rates. The Low Duration Preferred and Income Fund, in particular, has demonstrated consistent outperformance, with 89% of its AUM beating benchmarks in Q2 2025 and 94% on a one-year basis, as discussed on the Q2 2025 earnings call.

However, the firm's financials reveal a nuanced picture. While revenue rose to $135.3 million in Q2 2025, operating margins compressed to 33.6% from 34.7% in the prior quarter, driven by increased expenses shown in the Q2 2025 slides. Aggressive capital deployment-$242 million in seed investments for new ETFs-further strained operating cash flow, which turned negative by $176.6 million, as noted in the Q2 2025 earnings report. These figures highlight the trade-offs inherent in maintaining a diversified income strategy: while innovation and product expansion are critical for long-term growth, they come at the cost of short-term liquidity pressures.

Risks and Mitigations

The low-yield environment is not without its perils. Preferred securities, for example, are more likely to be called for redemption when interest rates decline, potentially disrupting cash flows, as noted in the Series 2025-1 summary. Cohen & Steers mitigates this risk through active security selection and a focus on undervalued securities relative to credit quality, a cornerstone of the Low Duration Preferred and Income Fund. Additionally, the firm's global footprint and team with over two decades of preferred securities expertise provide a competitive edge in navigating market complexities, as described in the low-duration preferred securities strategy.

Yet, the firm's reliance on high-yield assets exposes it to broader economic volatility. A recession or sharp rise in interest rates could erode the value of its holdings, particularly in high-yield bonds. To address this, Cohen & Steers emphasizes diversification across sectors and geographies, ensuring that no single risk factor disproportionately impacts its funds, consistent with its earlier analysis of preferreds and high yield.

The Road Ahead

Looking forward, Cohen & Steers' capital market assumptions paint a cautiously optimistic outlook. With a projected 3.25% federal funds rate and 4.5% fair value for the 10-year Treasury yield, the firm anticipates higher starting yields for fixed-income assets, as outlined in its capital market assumptions. Real assets, including infrastructure and REITs, are also expected to outperform, offering a hedge against inflation and economic volatility. These assumptions align with the firm's current strategies, suggesting that its focus on income generation and diversification will remain relevant in the coming decade.

Conclusion

Cohen & Steers' high-yield income funds offer a compelling solution for investors seeking stable cash flows in a low-yield world. By leveraging preferred securities and high-yield bonds, the firm has demonstrated the ability to outperform benchmarks while managing risk through active strategies and diversification. However, the path forward is not without challenges, particularly in balancing innovation with liquidity. For investors willing to accept the inherent risks, these funds represent a strategic tool to navigate the income-starved landscape of the 2020s.