Best Preferred Stock ETFs for Q1 2022

PFFA, PFXF, and PFFR are the best preferred stock ETFs for Q1 2022

Preferred stockholders have a higher claim to dividend payouts and the distribution of assets compared to common stockholders. In the event that a company liquidates, holders of preferred stock have a greater chance of getting paid. However, these perks do come at a cost: Many preferred stockholders do not enjoy voting rights in the company, and the shares have less potential to appreciate in price.

While companies that offer preferred stock are increasingly rare, some of the biggest U.S. firms provide this option. Many of these companies are banks, such as Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM).

Investors who want to buy preferred stocks may look to exchange-traded funds (ETFs) that specialize in this type of equity. Through preferred stock ETFs, investors receive income from multiple stocks while also enjoying the comfort of having their investment spread across several companies, thereby mitigating risk.

Key Takeaways

  • Preferred stocks dramatically underperformed the broader market over the past year.
  • The preferred stock ETFs with the best one-year trailing total returns are PFFA, PFXF, and PFFR.
  • The top holdings of these ETFs are preferred shares of South Jersey Industries, Broadcom Inc., and Vornado Realty Trust, respectively.

There are 13 preferred stock ETFs that trade in the United States, excluding inverse and leveraged funds as well as those with less than $50 million in assets under management (AUM). Preferred stocks, as measured by the S&P U.S. Preferred Stock Index, have underperformed the broader market over the past 12 months, providing a total return of 5.1% compared with the S&P 500’s total return of 28.8%, as of Dec. 7, 2021.

The best-performing preferred stock ETF for the first quarter (Q1) of 2022, based on performance over the past year, is the Virtus InfraCap U.S. Preferred Stock ETF (PFFA).

We examine the top three preferred stock ETFs below. All numbers below are as of Dec. 7, 2021.

Virtus InfraCap U.S. Preferred Stock ETF (PFFA)

  • Performance Over One-Year: 21.8%
  • Expense Ratio: 1.47%
  • Annual Dividend Yield: 7.58%
  • Three-Month Average Daily Volume: 163,051
  • Assets Under Management: $530.6 million
  • Inception Date: May 15, 2018
  • Issuer: Virtus Investment Partners

PFFA seeks to provide current income and capital appreciation by investing in preferred securities of U.S. companies with market capitalizations of more than $100 million. The fund is actively managed and uses a range of quantitative, qualitative, and relative valuation factors.

PFFA focuses primarily on preferred stocks issued by microcap companies with either high growth potential or strong value characteristics.

The fund’s top three holdings are preferred shares of South Jersey Industries (SJI), an energy services holding company; Crestwood Equity Partners L.P. (CEQP), an energy infrastructure and distribution company; and RLJ Lodging Trust (RLJ), a real estate investment trust (REIT) with a portfolio of hotels.

VanEck Preferred Securities ex Financials ETF (PFXF)

  • Performance Over One-Year: 10.9%
  • Expense Ratio: 0.40%
  • Annual Dividend Yield: 4.82%
  • Three-Month Average Daily Volume: 156,517
  • Assets Under Management: $1.1 billion
  • Inception Date: July 16, 2012
  • Issuer: VanEck

PFXF tracks the ICE Exchange-Listed Fixed & Adjustable Rate Non-Financial Preferred Securities Index, which is designed to gauge the performance of hybrid debt, preferred stock, and convertible preferred stock issued by nonfinancial corporations listed on U.S. exchanges. The ETF seeks to provide investors with high-income potential by investing in preferred stock, which has historically offered higher yields than common stock and senior debt.

PFXF offers broad diversification by investing in a range of nonfinancial companies, with its largest allocations being in the following sectors: electric utilities and independent power producers; residential and commercial REITs; and telecommunications services. The fund follows a blended strategy, investing in a mix of growth and value preferred shares of companies with a range of market caps.

PFXF’s top three holdings are the preferred shares of Broadcom Inc. (AVGO), a provider of semiconductor and infrastructure software products; NextEra Energy Inc. (NEE), an electric power and energy infrastructure company; and ArcelorMittal S.A. (MT), a Luxembourg-based steel manufacturing company.

InfraCap REIT Preferred ETF (PFFR)

  • Performance Over One-Year: 7.3%
  • Expense Ratio: 0.45%
  • Annual Dividend Yield: 5.97%
  • Three-Month Average Daily Volume: 17,966
  • Assets Under Management: $84.7 million
  • Inception Date: Feb. 7, 2017
  • Issuer: Virtus Investment Partners

PFFR tracks the Indxx REIT Preferred Stock Index, a market-cap weighted index designed to provide diversified exposure to high-yield, liquid preferred securities issued by U.S.-listed REITs. The ETF focuses on preferred securities issued by REITs because they tend to offer attractive yields and are typically exposed to less leverage and volatility, resulting in more predictable revenue streams than the preferred securities of banks and insurance companies.

PFFR follows a blended strategy, investing in a mix of both growth and value preferred securities of primarily microcap REITs.

The fund’s top three holdings are preferred shares issued by Vornado Realty Trust (VNO), an REIT; Diversified Healthcare Trust (DHCNI), a healthcare-focused REIT; and DigitalBridge Group Inc. (DBRG), an REIT that invests in infrastructure solutions focused on mobile and internet connectivity.

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