We had a few inquiries earlier this week on why there was so much selling pressure in preferred stocks, tracked by PFF (iShares S&P U.S. Preferred Stock, Expense Ratio 0.47%, Yield 2.66%) as there was very heavy volume the past two sessions after an especially steep Wednesday sell-off.

Alas, with the global equity rally we are seeing today on this sunny Friday, PFF is attempting to regain all of the lost ground from Wednesday’s session inside of a forty-eight hour period. PFF,
like all preferred stocks generally falls into the “Yield Assets” category, and often trades in tandem with things like U.S. Treasury and Corporate Bonds, and if one looks at simple charts of say TLT (iShares 20+ Year Treasury Bond, Expense Ratio 0.15%) and HYG (iShares High Yield Corporate Bond, Expense Ratio 0.50%) for example, they have been gradually weakening all week until today, where they have been bids not only in fixed income markets but also in equities.

PFF in spite of the extreme weakness on Wednesday, has actually net pulled in new assets in the trailing one month period (>$175 million in) and is by far the largest “Preferred Stock” ETF in the U.S. listed universe with nearly $12.9 billion in assets under management.

The second largest ETF in the space is PGX (PowerShares Preferred Portfolio, Expense Ratio 0.50%) which has about $2.7 billion in AUM, followed by PGF (PowerShares Financial Preferred Portfolio, Expense Ratio 0.63%) with $1.4 billion in AUM.

PFF has been around since 2007, and is often found as a core component in many ETF model portfolios where portfolio managers are looking for yield, but not willing to embrace the risk that comes with say High Yield Corporate Bonds, or Emerging Market Bonds, or individual common stocks for example.

When we break down the actual portfolio from an index standpoint that PFF tracks we see preferred stock holdings that look like the following: 1) Actavis PLC (2.85%), 2) HSBC Holdings (2.28%), 3) GMAC Capital (1.60%), 4) Barclays Bank (1.58%) and 5) Wells Fargo & Company (1.45%).

iShares U.S. Preferred Stock ETF