Like bonds, preferreds are sold at par value, or offer a fixed or floating rate of income, so prices fluctuate with interest rates, writes William Scapell, director of fixed income and preferred securities portfolio manager at Cohen & Steers, for InvestmentNews.
While preferred stocks provide investors with an attractive source of yields, potential investors should keep in mind that the assets are vulnerable in a rising interest rate environment. If rates rise, the holdings must decline in price to elevate their yield to attractive levels. Furthermore, most preferred stocks are either perpetual or long-dated, which exposes investors to significant interest-rate risk. [Evaluating Preferred ETFs Ahead of a Rate Hike]
Another option to consider is the PowerShares Variable Rate Preferred Portfolio Fund (NYSEArca: VRP). Variable-rate preferreds usually trade mroe like bonds with shorter durations, so more conservative investors may find the lower-risk profile more appealing. However, VRP comes with a lower 4.57% 12-month yield. [The Right Preferred ETF Right Now]
iShares U.S. Preferred Stock ETF
