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.

RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Participating Convertible Preferred ...

    An equity holding that gives investors the right to claim excess ...
  3. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  4. Convertible Preferred Stock

    Preferred stock that includes an option for the holder to convert ...
  5. Preferred Dividend

    A dividend that is accrued and paid on a company's preferred ...
  6. Participating Preferred Stock

    A type of preferred stock that gives the holder the right to ...
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. 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 ... Read Full Answer >>
  3. What kinds of derivatives are traded on an exchange?

    There are many different types of derivatives traded on exchanges including options, futures, swaps and forward contracts. ... Read Full Answer >>
  4. Who regulates the various types of exchange traded funds (ETFs)?

    The Securities and Exchange Commission (SEC), under the Securities Act of 1933, regulates the vast majority of exchange-traded ... Read Full Answer >>
  5. How does arbitrage affect the price of exchange traded funds (ETFs)?

    Arbitrage may be used to bring the market value of an exchange-traded fund (ETF) back into line with the net asset value ... Read Full Answer >>
  6. How are new exchange traded funds (ETFs) created?

    The creation and structure of exchange-traded funds (ETFs) are similar to that of mutual funds. An ETF serves as a portfolio ... Read Full Answer >>
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