Like bonds, preferreds are sold at par value, or offer a fixed or floating rate of income, so prices fluctuate with interest rates.
“Although the performance of these funds in terms of yield and YTD returns is very similar, and there is little difference between the expense ratios, the PowerShares Preferred ETF holds the edge based on its five-year average annualized return. A more exhaustive look at the return history of the two funds also shows it holding the advantage, with a three-year average annualized return of 6.16%, compared to 4.87% for the iShares US Preferred Stock ETF, and a one-year return of 6.05%, which is substantially higher than the iShares ETF’s return of 2.91%.” according to Investopedia.
Alternatively, investors may also consider the PowerShares Variable Rate Preferred Portfolio Fund (NYSEArca: VRP) in a rising rate environment. Variable-rate preferreds usually trade more like bonds with shorter durations, so more conservative investors may find the lower-risk profile more appealing.
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iShares U.S. Preferred Stock ETF
