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 2.8% compared with 18.4% for the S&P 500 as of February 17, 2021.
- Preferred stocks underperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are PFXF, FPE, and PFFD.
- The top holdings of these ETFs are preferred shares of NextEra Energy Inc., Emera Inc., and Broadcom Inc., respectively.
There are 12 preferred stocks ETFs that trade in the U.S., 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 VanEck Vectors Preferred Securities ex Financials ETF (PFXF). Below, we'll look at the top 3 preferred stocks ETFs as measured by 1-year trailing total returns. All data throughout are as of February 17, 2021.
- 1-Year Trailing Total Return: 4.6%
- Expense Ratio: 0.41%
- Annual Dividend Yield: 5.18%
- 3-Month Average Daily Volume: 185,094
- Assets Under Management: $835.8 million
- Inception Date: July 16, 2012
- Issuer: VanEck
PFXF is a multi-cap, blended fund that tracks the Wells Fargo Hybrid and Preferred Securities ex Financials Index. The index holds a basket of U.S.-listed preferred securities, not including those with a financial sector classification. The index also holds stocks that Wells Fargo Securities considers equivalent to preferred stocks, such as convertible securities and depository preferred securities. The top holdings of PFXF include preferred shares of NextEra Energy Inc. (NEE), an electric utility holding company; ArcelorMittal Luxembourg S.A. (MTCN), a Luxembourg-based steel manufacturing company; and Aptiv plc (APTV), an Ireland-based auto parts company.
- 1-Year Trailing Total Return: 4.5%
- Expense Ratio: 0.85%
- Annual Dividend Yield: 4.83%
- 3-Month Average Daily Volume: 1,502,079
- Assets Under Management: $6.0 billion
- Inception Date: February 11, 2013
- Issuer: First Trust
FPE is an actively managed fund that invests at least 80% of assets in not only preferred securities, but also income-producing debt securities such as corporate bonds, high yield securities, and convertible securities. Just over half of FPE assets are allocated to U.S. securities. The fund currently has more than 270 holdings, more than half of which are in the banking and insurance industry. The top holdings of FPE include preferred shares of Emera Inc. (EMRAF), a Canada-based energy holding company; AerCap Holdings NV (AER), an aircraft leasing company; and Barclays plc (BCLYF), the British financial services company.
- 1-Year Trailing Total Return: 4.4%
- Expense Ratio: 0.23%
- Annual Dividend Yield: 5.22%
- 3-Month Average Daily Volume: 683,602
- Assets Under Management: $1.2 billion
- 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 ICE BofAML Diversified Core U.S. Preferred Securities Index, which invests in a broad basket of preferred stocks. PFFD has an expense ratio that's significantly lower than many competitors. The fund's top holdings include preferred stocks from Broadcom Inc. (AVGO), the semiconductor and infrastructure software company; Wells Fargo & Co. (WFC), the global financial institution; and Bank of America Corp., the global bank.
The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.