Preferred stock ETFs have delivered nicely for shareholders with steady returns, decent yields and low volatility.
The iShares S&P U.S. Preferred Stock Index Fund (NYSEArca: PFF) is the largest ETF in the category and pays a 12-month yield of 6%.
Now the fund is trying to break out to its highest level since the financial crisis after posting a total return of about 18% in 2012.
Preferred shares are hybrid securities that combine some features of stocks and bonds.
The $11.6 billion ETF has been remarkably stable while also paying investors a steady stream of dividends. The last quarter it suffered a loss was in Q3 2011.
“With yield so scarce today, investors are branching out into different asset classes in the search for income. Preferred stock can be a high-yielding addition to a diversified income-seeking portfolio,” says Morningstar analyst Abby Woodham.
So far this year, PFF has gathered nearly $700 million of new assets. In 2012, investors poured about $3 billion into the preferred stock ETF, according to IndexUniverse data.
“Preferred stock is a hybrid security usually issued by highly leveraged companies, such as financial institutions, telecoms, and utilities,” Woodham writes in a profile of PFF.