The iShares S&P U.S. Preferred Stock Index Fund (NYSEArca: PFF) is the sector’s largest ETF with assets of more than $10 billion. It has an expense ratio of 0.48% and a 12-month yield of 5.7%, according to sponsor BlackRock (NYSE: BLK).

“Preferred stock is a surprisingly good diversifier: it has low correlation to other income-generating asset classes like REITs, MLPs, corporate bonds, TIPS, and popular income ETFs,” Morningstar says in a report on PFF.

Preferred shares are hybrid securities that combine the features of stocks and bonds. “PFF is not without its headwinds; in fact, there are many significant risk factors investors must consider. Heavy exposure to financials, regulation changes, and rising interest rates are foremost in this list,” according to Morningstar.

Other ETFs in this category include PowerShares Preferred Portfolio (NYSEArca: PGX), PowerShares Financial Preferred Portfolio (NYSEArca: PGF), iShares S&P International Preferred Stock Index (NYSEArca: IPFF), Market Vectors Preferred Securities ex Financials ETF (NYSEArca: PFXF), Global X Canada Preferred ETF (NYSEArca: CNPF) and Global X SuperIncome Preferred ETF (NYSEArca: SPFF).

SPDR Wells Fargo Preferred Stock ETF

Full disclosure: Tom Lydon’s clients own PGF.

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