The iShares S&P US Preferred Stock Fund (NASDAQ: PFF), the largest exchange traded fund dedicated to preferred stocks, is getting a new index.
Preferred stocks are a type of hybrid security that show bond- and equity-like characteristics. The shares are issued by financial institutions, utilities and telecom companies, among others. Within the securities hierarchy, preferreds are senior to common stocks but junior to corporate bonds. Additionally, preferred stocks issue dividends on a regular basis, but investors don’t usually enjoy capital appreciation on par with common shares.
Currently, the $14.57 billion PFF tracks the S&P U.S. Preferred Stock Index. The fund is transitioning to the ICE Exchange-Listed Preferred & Hybrid Securities Transition Index and will eventually be renamed the iShares Preferred and Income Securities ETF, but its ticker will remain the same.
What’s Next for Investors
Income investors have looked to preferred stock ETFs in their portfolios for a number of reason. For instance, the asset class offers stable dividends, does not come with taxes on qualified dividends for those that fall into the 15% tax bracket or lower, is senior to common stocks in the event liquidation occurs, is less volatile than bonds and provides dividend payments before common shareholders.
Starting in February, PFF will undergo 10 monthly rebalances as part of using the aforementioned transition index. Eventually, the ETF will track the ICE Exchange-Listed Preffered & Hybrid Securities Index.
PFF currently holds 300 preferred stocks and has a 30-day SEC yield of 5.61%. The fund’s annual expense ratio is 0.46%, or $46 on a $10,000 investment.
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