Preferred Stock ETF

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DEFINITION of 'Preferred Stock ETF'

An exchange-traded fund that either tracks a preferred stock index or invests primarily in preferred shares. A preferred stock ETF appeals to investors who desire above-average yields, especially in a low interest rate environment. The advantages of a preferred stock ETF include diversification and low management fees.

INVESTOPEDIA EXPLAINS 'Preferred Stock ETF'

Preferred shares are hybrid instruments that have both debt and equity features. Preferred shareholders rank ahead of common shareholders in terms of dividends and claims on assets, but their claims are subordinate to those of debt-holders. Preferred share dividends are also taxed favorably in a number of jurisdictions. Unlike common shares, preferred shares have little participation in the upside potential of the issuer, which means that preferred stock ETFs are likely to significantly underperform equity ETFs when stock markets are rising strongly.

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  2. Convertible Preferred Stock

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  3. Preferred Stock

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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 ...
  2. Why do some preferred stocks have a higher yield than common stocks?

    Before we answer this question, let's just take a quick review of what a stock's yield is actually measuring.The yield is ...
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