“When the curve steepens, the prices of fixed-to-floats fall. The reason for this is the disconnect between the coupon benchmark (three-month LIBOR) and the trading benchmark (long-dated U.S. Treasuries). When yields on the long end of the curve rise faster or independent of short-term yields, the yield on fixed-to-floats rise without a commensurate increase in coupon. The result is a price decline,” according to a Wealth Strategies & Management note posted by Amey Stone of Barron’s.
[related_stories]Other well-known preferred ETFs include the PowerShares Preferred Portfolio (NYSEArca: PGX) and the Global X SuperIncome Preferred ETF (NYSEArca: SPFF).
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. Although VRP is a lower duration product, it does yield over 5%.
iShares S&P US Preferred Stock Index Fund
