With yields over 6% in some cases, preferred stock exchange traded funds have attracted the attention of income-starved investors. Most have honed in on the iShares S&P US Preferred Stock Index Fund (NYSEArca: PFF), but investors are doing themselves a disservice if they don’t at least consider the other alternatives.
Preferred stocks are a type of hybrid security that exhibit the characteristics of equity and bond instruments. The shares are issued by financial institutions, utilities and telecom companies. This class of stocks provides high yields, but unlike regular stocks, the dividends are fixed, so investors can rely on a relatively stable source of income. [What is an ETF? — Part 21: Preferred Stocks]
The iShares fund is the largest preferred stock ETF, with almost $10 billion in assets. It tracks the performance of the S&P U.S. Preferred Stock Index. The fund has a 0.48% expense ratio and a 6.07% 30-day SEC yield.
PFF has 268 holdings, and its top allocations include HSBC Holdings 2.6%, General Motors 2.2%, Barclays Bank 1.7%, GMAC Capital Trust 1.6%% and Welsl Fargo & Co 1.6%. Sector allocations include diversified financials 41.8%, banks 24.3%, insurance 8.6%, real estate 8.4%, utilities 4.4%, capital goods 3.2%, automobiles 2.9%, telecom 2.0%, energy 0.9% and materials 0.5%.
Besides the iShares preferred stock ETF, investors may consider the other alternatives, including:
The PowerShares Preferred Portfolio (NYSEArca: PGX) tries to reflect the performance of the BofA Merrill Lynch Core Plus Fixed Rate Preferred Securities Index. The fund has a 0.50% expense ratio and a 6.52% 30-day SEC yield.
PGX has 148 holdings, and its top allocations include Citigroup Capital XIII 4.3%, Wells Fargo & Co. 4.0%, Barclays BK PLC 3.6%, JPMorgan Chase 3.3% and Bank of America Corp.3.1%. Sector allocations include energy 0.3%, financials 91.8%, industrials 0.5%, materials 0.1%, telecom services 2.2% and utilities 5.0%.
The PowerShares Financial Preferred Portfolio (NYSEArca: PGF) is based on the wells Fargo Hybrid and Preferred Securities Financial Index, which only tracks financials companies. The fund has a 0.66% expense ratio and a 6.49% 30-day SEC yield.
PGF has 54 holdings, and its top allocations include HSBC Holdings PLC 7.5%, Bank of America Corp. 6.0%, ING Groep 4.9%, BB&T Corporation Ser 4.5% and HSBC Holdings PLC 4.1%.
The SPDR Wells Fargo Preferred Stock ETF (NYSEArca: PSK) tries to reflect the performance of the Wells Fargo Hybrid and Preferred Securities Aggregate Index. The fund has a 0.45% expense ratio and a 5.17% 30-day SEC yield.
PSK has 138 holdings, and its top allocations include Barclays Bank Plc 2.3%, PNC Financial Services 2.3%, HSBC Holdings 2.2%, Credit Suisse Guernsey BRH 2.2% and Wells Fargo & Co. New 2.2%. Sector allocations include financials 81.8%, utilities 5.7%, telecom services 2.8%, industrials 2.3%, consumer durables 1.1% and consumer discretionary 0.9%.
The iShares S&P International Preferred Stock Index (NYSEArca: IPFF) tracks the performance of the S&P International Preferred Stock Index. The fund has a 0.55% expense ratio and a 3.46% 30-day SEC yield.
IPFF has 63 holdings, and its top allocations include Swedbank AB-PRF 4.2%, BCE Inc 3.5%, Transcanada Corp 3.1%, Enbridge Inc. 2.8% and ManuLife FInancial Corp. 2.7%. Sector allocations include financials 73.0%, energy 16.4%, utilities 4.7%, telecom 4.1% and industrials 1.2%. Country allocations include Canada 71.3%, U.K. 12.5%, Sweden 5.1%, Singapore 3.2% and Guernsey 1.7%.
The Market Vectors Preferred Securities ex Financials ETF (NYSEArca: PFXF) tries to reflect the performance of the Wells Fargo Hybrid and Preferred Securities ex Financials Index, which only follows non-financial preferred securities. The fund has a 0.40% expense ratio and a 6.30% 30-day SEC yield.
PFXF has 73 holdings, and its top allocations include General Motors 10.1%, PPL Corp. 3.6%, Apache Corp 3.5%, United Technologies 3.5% and PPL Corp. 3.1%. Sector allocations include REITs 28.8%, electric 24.6%, automobile 11.5%, telecom 7.6%, insurance 5.8%, oil & gas 4.9%, aerospace & defense 3.3%, sovereign 1.9%, mining 1.9% and auto parts & equipment.
The Global X Canada Preferred ETF (NYSEArca: CNPF) tires to reflect the performance of the Solactive Canada Preferred Stock Index. The fund has a 0.58% expense ratio and a 3.65% 30-day SEC yield.
CNPF has 51 holdings, and its top allocations include TransCanada 3.4%, Enbridge 3.4%, ManuLife 2.9%, Toronto-Dom Bank 2.6% and Royal BK Canada 2.6%. Sector allocations include financials 70.2%, energy 13.4%, telecom 8.6%, oil & gas 3.5%, utilities 1.9%, consumer staples 1.3% and consumer discretionary 1.2%.
The Global X SuperIncome Preferred ETF (NYSEArca: SPFF) tries to reflect the performance of the S&P Enhanced Yield North American Preferred Stock Index. The fund has a 0.58% expense ratio and a 6.51% 30-day SEC yield.
SPFF has 40 holdings, and its top allocations include Credit Suisse 5.9%, American International Group 4.4%, Aegon NV 4.2%, Wells Fargo XII 4.0%, Prudential Financial 3.9%. Sector allocations include financials 74.1%, insurance 8.4%, real estate 6.1%, energy 4.3%, industrials 2.7%, basic materials 2.4% and telecom 2.1%.
For more information on preferred shares, visit our preferred shares category.
Max Chen contributed to this article.