Preferred stock ETFs are on investors’ radar screens this year because the funds have delivered healthy yields and steady performance boosted by the recovery in the financial sector in which they’re concentrated.
When looking at any particular sector, investors usually have several choices when it comes to ETFs. Comparing and contrasting rival ETFs can be a useful exercise.
For instance, the Yieldpig Blog highlighted two preferred stock ETFs, the iShares S&P U.S. Preferred Stock Index Fund (NYSEArca: PFF) and the PowerShares Preferred Portfolio (NYSEArca: PGX). [Preferred Stock ETFs Beating S&P 500 with 6% Yields]
To start off, the iShares ETF tracks the S&P U.S. Preferred Stock Index while the PowerShares fund follows the BofA Merrill Lynch Core Plus Fixed Rate Preferred Scurities Index. As such, investors can expect differences in the holdings between the two indexing methodologies. [Preferred Stocks]
PFF comes with a 0.48% expense ratio, a 5.84% 30-day SEC yield and a 83% allocation toward the financial sector. PGX has a 0.50% expense ratio, a 6.43% 30-day SEC yield and a 91% allocation to financials.
The major differences can be seen through the two indices’ credit rating allocations. About 64% of PGX’s holdings are considered investment grade, or BBB and higher, according to S&P, and 48% are rated Baa or better, according to Moody’s. Meanwhile, only 44% of PFF’s portfolio is BBB or better under S&P ratings and 0.57% is Baa or better, according to Moody’s.