ETF Trends
ETF Trends

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.

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