Furthermore, preferred shares are a financing tool for corporations, as these shares can prevent a takeover and also allow companies to go into the red without a penalty, which is common for bond issues. Preferred shares allow some voting rights, registration rights, the rights to financial statements, preemptive rights on future stock financing, and first refusal on sales of founder stock and so forth. [Preferred Stock ETFs Show Strength]

Although a preferred share is an equity security, it does not gain from the earnings growth of the company, nor the stock appreciation. The pricing is similar to a long-term corporate bond, with a higher credit risk, reports Timothy Strauts for Morningstar. [ETF Chart of the Day: Convertible Bonds]

Currently, many of the ETFs trading are weighted heavily in the financial sector as banks dominate this area of the market. Utilities and telecom companies can be common in the preferred area of the market, but not so much with ETFs, as most of the indexes have been constructed with a tilt to the financial sector.

Preferred shares ETFs:

  • SPDR Convertible Bond ETF (NYSEArca: CWB)
  • SPDR Wells Fargo Preferred ETF (NYSEArca: PSK)
  • PowerShares Preferred ETF (NYSEArca: PGX)
  • PowerShares Financial Preferred ETF (NYSEArca: PGF)
  • iShares U.S. Preferred Stock Index

iShares U.S. Preferred Stock Index

Tisha Guerrero contributed to this article.