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.

BREAKING DOWN '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.

RELATED TERMS
  1. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  2. Participating Preferred Stock

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  3. Preference Shares

    Company stock with dividends that are paid to shareholders before ...
  4. Prior Preferred Stock

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  5. Preferred Dividend

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  6. Convertible Preferred Stock

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RELATED FAQS
  1. Why would a company issue preference shares instead of common shares?

    Learn about some reasons that corporations might issue preference shares and why investors might value them more than common ... Read Answer >>
  2. What are some examples of preferred stock, and why do companies issue it?

    Understand the difference between preferred stock and common stock, and learn the primary reasons why companies issue preferred ... Read Answer >>
  3. What is common stock and preferred stock?

    Learn about the differences between common and preferred shares. Explore situations where preferred shares have more favorable ... Read Answer >>
  4. How does preferred stock differ from company issued bonds?

    Discover the primary differences between preferred stock and corporate bonds, two income-generating investment vehicles issued ... Read Answer >>
  5. What are preferred shares?

    Understand what preferred shares are. Learn about both the benefits and the drawbacks of preferred shares, which effects ... Read Answer >>
  6. What are the advantages and disadvantages of preference shares?

    Learn about the advantages and disadvantages of preference shares to both investors and issuing companies, including the ... Read Answer >>
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