VettaFi’s vice chairman Tom Lydon discussed the Global X U.S. Preferred ETF (PFFD) on this week’s “ETF of the Week” podcast with Chuck Jaffe of “Money Life.”
“It is all about yields in these inflationary times,” Jaffe noted. Preferred stocks offer yield and diversified income opportunities. Much like collateralized loan obligations, preferreds can deliver yield even in high rate environments.
Lydon said, “We know preferred strategies tend to be highly allocated to financials; financials tend to do better with rising interest rates because banks can lend out more money for a higher yield.”
PFFD has already brought in $350 million in the month of August. As one of the biggest funds in its peer group, PFFD offers a robust 6% yield. AUM for PFFD is nearly $16 billion.
Speaking to how this fits into a portfolio, Lydon noted that the classic 60/40 portfolio would have been hard to beat over the past decade, but recent market trends have required some creativity with fixed income allocations. He said, “The good thing about a bear market that we’ve just experienced is that at one point in time, the bear will recover.” If equities in general stabilize and you get a stable 6% yield, that can offset declines in traditional fixed income.
With PFFD closing in on its 200-day moving average, Lydon noted that, “if you got cash on the sideline and you’re still not getting paid for it, and you are looking to fit more into your portfolio at the right time, you could absolutely use this as a trend-following play.”
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