The largest ETF tracking preferred shares is trading near a 52-week high as investors gravitate to yield-producing sectors.
The iShares S&P U.S. Preferred Stock Index Fund (NYSEArca: PFF) has delivered a year-to-date total return of 13.2% as of July 13, according to Morningstar. [ETF Chart of the Day: Preferred Shares]
PFF has a 30-day SEC yield of 6.3%, according to manager BlackRock. [Some Preferred Stock ETFs Yield More Than 6%]
Along with dividend funds, preferred stock ETFs have been popular with investors trying to boost yield in their portfolios.
Preferred shares are hybrid securities that combine features of stocks and bonds.
“This represents ownership in a company, but it has more protection than common stock. A preferred stock also typically pays a higher yield,” writes Tom Taulli at InvestorPlace.
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
