On the risk side of the equation, potential investors should keep in mind that PFF and preferred stock ETFs have heavy allocations to the financial sector.
“Preferreds have no voting rights, are senior in the capital structure to common stock, and have priority over common stock in the payment of dividends,” says Morningstar analyst Timothy Strauts.
“PFF provides exposure to a niche asset class that could make sense for an income investor looking for a little extra yield and willing to take on the risks embedded in moving down the capital structure from debt to do so,” he wrote in an analyst report on the ETF. “This fund is highly concentrated in financial issuers, which take up more than 80% of assets.”
Other preferred stock ETFs include:
- PowerShares Preferred (NYSEArca: PGX)
- PowerShares Financial Preferred (NYSEArca: PGF)
- SPDR Wells Fargo Preferred Stock (NYSEArca: PSK)
iShares S&P U.S. Preferred Stock Index Fund
