As the ETF industry has expanded in recent years, so too has the number of asset classes accessible through exchange-traded products. Preferred stock ETFs have become a big hit with some investors, offering “hybrid” exposure that has delivered strong returns and provided valuable diversification benefits to traditional portfolios by combining the benefits of both traditional equities and bonds .

ETFdb Pro members can read more in our Preferred Stock ETFdb Category report, which details the eight different funds currently available to investors.

The Hybrid ETF

Preferred stocks are by no means a new financial innovation having been a preferred financing source for many financial companies for decades, but despite their popularity as a means of raising capital, preferred stock investments have been slow to catch on in the ETF world. By offering the characteristics of both stocks and bonds, preferred stock ETFs can be impacted by a number of factors, including interest rates, liquidity and the underlying stock fundamentals. With a market cap of almost $13 billion, ETFs in this category may be ideal for investors looking to reduce volatility in equity-intensive portfolios or provide opportunities for enhanced returns in portfolios that are dominated by fixed-income holdings. .

The chart below highlights the dividend yield, three-year performance and number of holdings in the five largest preferred stock ETFs:

  • SPDR Barclays Capital Convertible Bond ETF (ARCA:CWB)
  • iShares S&P US Preferred Stock Fund (ARCA:PFF)
  • Powershares Financial Preferred Portfolio (ARCA:PGF)
  • Powershares Preferred Portfolio (ARCA:PGX)
  • SPDR Wells Fargo Preferred Stock ETF (ARCA:PSK)


This comparison is only based on the returns of these ETFs; it is also important for investors to take a close look at the weighting and holding methodologies of these ETFs, as these can strongly influence future returns and dividend yields.

 

Disclosure: No positions at time of writing.

 

Related Articles
  1. Bonds & Fixed Income

    A Primer On Preferred Stocks

    Offering both income and relative security, these uncommon shares may work for you.
  2. Fundamental Analysis

    Valuation Of A Preferred Stock

    Determining the value of a preferred stock is important for your portfolio. Learn how it's done.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Asia 50

    Read more about BlackRock's iShares Asia 50 Fund, an ETF that follows the four "Asian Tiger'' nations plus China.
  4. Investing

    Build a Retirement Portfolio for a Different World

    When it comes to retirement rules of thumb, the financial industry is experiencing new guidelines and the new rules for navigating retirement.
  5. Mutual Funds & ETFs

    ETF Analysis: WisdomTree International LargeCp Div

    Learn more about the WisdomTree International LargeCap Dividend fund, an income-based international equities ETF that focuses heavily on the United Kingdom.
  6. Mutual Funds & ETFs

    ETF Analysis: United States Gasoline Fund

    Learn about the United States Gasoline Fund, the characteristics of the exchange-traded fund, and the suitability and recommendations of it.
  7. Mutual Funds & ETFs

    ETF Analysis: United States 12 Month Oil

    Find out more information about the United States 12 Month Oil ETF, and explore detailed analysis of the characteristics, suitability and recommendations of it.
  8. Mutual Funds & ETFs

    ETF Analysis: ProShares Ultra Nasdaq Biotechnology

    Find out information about the ProShares Ultra Nasdaq Biotechnology exchange-traded fund, and learn detailed analysis of its characteristics and suitability.
  9. Mutual Funds & ETFs

    ETF Analysis: Direxion Daily S&P Biotech Bull 3X

    Learn more about the Direxion Daily S&P Biotech Bull 3x exchange-traded fund, a new triple-leveraged ETF tracking biotechnology equities.
  10. Mutual Funds & ETFs

    ETF Analysis: First Trust Health Care AlphaDEX

    Learn more about the First Trust Health Care AlphaDEX exchange-traded fund, an indexed fund that uses an advanced stock selection methodology.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Security

    A financial instrument that represents an ownership position ...
  4. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating ...
  5. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  6. Weighted Average Cost Of Capital ...

    A calculation of a firm's cost of capital in which each category ...
RELATED FAQS
  1. What is the difference between preferred stock and common stock?

    Preferred and common stocks are different in two key aspects. First, preferred stockholders have a greater claim to a company's ... Read Full Answer >>
  2. Can preferred stocks be traded like common stocks? Are their prices the same?

    First, let's look at the differences and similarities between common stocks and preferred stocks. Both represent a piece ... Read Full Answer >>
  3. Is preferred stock an equity or a fixed-income security?

    Preferred stock is equity. Preferred stock also (usually) has a fixed dividend payout. This is why some investors have referred ... Read Full Answer >>
  4. Can mutual funds invest in commodities?

    Mutual funds can invest in commodities. In fact, mutual funds may provide a better way for investors to gain exposure to ... Read Full Answer >>
  5. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  6. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!