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 interest rate risk.

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Wells Fargo’s Brian Rehling “doesn’t think investors should overdo it. In fact, over a  year ago he told Barron’s that investors shouldn’t fall in love withe preferreds. At that point his firm recommended preferreds make up 11% of a fixed-income portfolio, or not more than 3-4% of a total investment portfolio,” according to Barron’s.

For more information on Fixed-Income ETFs, visit our Fixed-Income category.

iShares U.S. Preferred Stock ETF