Preferred stockholders have a higher claim to dividend payouts or the distribution of assets compared to common stockholders. In the event that a company liquidates, holders of preferred stock receive distributions first. But many preferred stockholders do not enjoy voting rights in the company. While companies that offer preferred stock are increasingly rare, some of the biggest firms in the U.S. do provide this option. Many of these companies are banks such as Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM). Investors looking to buy preferred stocks may look to exchange-traded funds (ETFs) that specialize in this type of equity. Through preferred stock ETFs, investors receive the income from multiple stocks while also enjoying the comfort of having their investment spread across several companies, thereby mitigating risk. As a group, companies offering preferred stock have underperformed the broader market in the past year. The benchmark S&P U.S. Preferred Stock Index has 1-year trailing total returns of 5.0% as compared with 15.7% for the Russell 1000 as of September 17, 2020.
- Preferred stocks underperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are EPRF, PGF, and PFFD.
- The top ETF holdings are preferred stocks from Aegon NV in one fund, and Wells Fargo & Co. in the other two.
There are 11 preferred stocks ETFs available, excluding inverse and leveraged funds as well as those with under $50 million in assets under management (AUM). The best preferred stocks ETF, based on 1-year trailing performance, is the Innovator S&P High Quality Preferred ETF. Below, we'll look at the top 3 preferred stocks ETFs as measured by 1-year trailing total returns. All data below are as of September 19, 2020.
- 1-Year Trailing Total Return: 6.1%
- Expense Ratio: 0.47%
- Annual Dividend Yield: 5.15%
- 3-Month Average Daily Volume: 58,197
- Assets Under Management: $93.7 million
- Inception Date: May 24, 2016
- Issuer: Innovator Management
EPRF is a fund targeting U.S.-listed preferred stocks. The fund tracks the S&P U.S. High Quality Preferred Stock Index, which screens for investment grade preferred issues. About a quarter of the fund's invested assets are divided across the top 10 holdings. EPRF's top holdings are preferred stocks from Aegon NV (AEB), a Netherlands-based life insurance, pensions, and asset management company; Federal Realty Investment Trust (FRT), a REIT focused on shopping centers; and AXIS Capital Holdings Ltd (AXS), a holding company providing property, workers compensation, casualty, and other types of insurance through subsidiaries.
- 1-Year Trailing Total Return: 5.1%
- Expense Ratio: 0.62%
- Annual Dividend Yield: 4.99%
- 3-Month Average Daily Volume: 396,938
- Assets Under Management: $1.6 billion
- Inception Date: December 1, 2006
- Issuer: Invesco
PGF tracks the Wachovia Hybrid & Preferred Securities Financial Index, and index of roughly 30 companies representing the financial services industry. The fund holds a larger number of securities, with a total portfolio of about 100. Among the fund's top holdings are preferred stocks from financial institutions Wells Fargo & Co. (WFC) and two separate classes of shares of JPMorgan Chase.
- 1-Year Trailing Total Return: 5.1%
- Expense Ratio: 0.23%
- Annual Dividend Yield: 5.43%
- 3-Month Average Daily Volume: 284,043
- Assets Under Management: $723.6 million
- Inception Date: September 11, 2017
- Issuer: Global X
PFFD is a multi-cap blended fund targeting U.S.-listed preferred stocks. The fund tracks the BofA Merrill Lynch Diversified Core U.S. Preferred Securities Index, which invests in a broad basket of preferred stocks such as floating, variable and fixed-rate preferreds, and cumulative and trust preferreds. PFFD has an expense ratio that's significantly lower than many competitors in the preferred stocks space. The fund's top holdings include preferred stocks from Wells Fargo; Bank of America; and Broadcom Inc. (AVGO), the semiconductor and infrastructure software company.