In a world of QE3 and Fed-mandated ultra-low interest rates, where 10-year U.S. Treasuries yield 1.6%, five-year certificate of deposits pay 0.98%, and the coupon of investment grade bonds averages 4.71%, yield-focused retail investors have limited options in the fixed income world. These yield investors have “rediscovered” fixed income’s second cousin: preferred equity. (All numbers are as of Sept. 30, 2012.)

Over the past year, preferred equity has undergone a renaissance in demand not seen in the past 40 to 50 years. The supply of preferred securities has soared well ...