Preferred stocks are a difficult part of the market to choose stocks from. Since the ETFs pick the companies for investors, a difficult part of the process is done. These stocks are sensitive to interest rate movements and the overall performance of the company issuing them.
The iShares S&P U.S. Preferred Stock Index (NYSEArca: PFF) is highly concentrated (about 80%) in financial stocks, and most preferred shares issued are from this sector. This is the largest and most liquid preferred shares ETF.
The index uses a modified cap weighting; eligible preferreds must have a capitalization greater then $100 million and have traded over 250,000 shares in the previous six months, according to Morningstar data. PFF yields 6.45%, and charges 0.48%. [Waiting Out the Stock Market with Preferred High Yield ETFs]
Other Preferred Stock ETFs:
- PowerShares Preferred (NYSEArca: PGX) yields 6.8%
- PowerShares Financial Preferred (NYSEArca: PGF) yields 6.8%
- SPDR Wells Fargo Preferred Stock (NYSEArca: PSK) yields 6%
iShares S&P U.S. Preferred Stock Index
Tisha Guerrero contributed to this article.
Full disclosure: Tom Lydon’s clients own PGF.