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 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 the income from multiple stocks while also enjoying the comfort of having their investment spread across several companies, thereby mitigating risk.
- Preferred stocks dramatically underperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are PFFA, IPFF, and PFFR.
- The top holdings of these ETFs are preferred shares of American Finance Trust Inc., TC Energy Corp., and Monmouth Real Estate Investment Corp., respectively.
There are 13 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). Preferred stocks, as measured by the S&P U.S. Preferred Stock Index, has underperformed the broader market with a total return of 16.4% over the past 12 months compared to the S&P 500's total return of 42.0%, as of May 18, 2021. The best-performing preferred stock ETF for Q3 2021, based on performance over the past year, is the Virtus InfraCap U.S. Preferred Stock ETF (PFFA). We examine the top 3 best preferred stock ETFs below. All numbers below are as of May 19, 2021.
- Performance over 1-Year: 61.0%
- Expense Ratio: 2.01%
- Annual Dividend Yield: 7.59%
- 3-Month Average Daily Volume: 216,306
- Assets Under Management: $418.6 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. It focuses primarily on preferred stocks issued by micro-cap companies with either high growth potential or strong value characteristics. Its top three holdings include preferred shares of American Finance Trust Inc. (AFIN), a real estate investment trust (REIT) focused on service-oriented, traditional retail, and distribution commercial real estate properties; RLJ Lodging Trust (RLJ), a REIT with a portfolio of hotels; and DCP Midstream LP (DCP), a midstream natural gas company.
- Performance over 1-Year: 55.7%
- Expense Ratio: 0.55%
- Annual Dividend Yield: 3.18%
- 3-Month Average Daily Volume: 73,535
- Assets Under Management: $60.5 million
- Inception Date: Nov. 15, 2011
- Issuer: BlackRock Financial Management
IPFF tracks the S&P International Preferred Stock Index, which gauges the performance of a group of preferred stocks of companies in developed markets outside of the U.S. As a result, IPFF's focus is providing investors with exposure to international preferred stocks. The fund is disproportionately weighted toward Canada, but it also provides some exposure to preferred equities of companies in the U.K., Sweden, and Singapore. Financial institutions are the fund's biggest allocation by sector, followed by industrial companies and utilities. The fund's top three holdings include preferred stocks of TC Energy Corp. (TRP), a Canada-based provider of energy infrastructure services; Canadian Imperial Bank of Commerce (CM), a Canada-based financial institution that provides banking and wealth management services; and Klovern AB (KLOV), a Sweden-based real estate company focused on commercial buildings with office space and shops.
- Performance over 1-Year: 31.3%
- Expense Ratio: 0.45%
- Annual Dividend Yield: 5.95%
- 3-Month Average Daily Volume: 38,075
- Assets Under Management: $87.7 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-yielding, liquid, preferred securities issued by REITs based in the U.S. The ETF focuses on preferred securities issued by REITs for a number of reasons. REITs tend to offer attractive yields, and they are typically exposed to less leverage with more predictable revenue streams than the preferred securities of banks and insurance companies. It follows a blended strategy of investing in a mix of both growth and value preferred securities of primarily micro-cap REITs. The fund's top three holdings include preferred shares issued by Monmouth Real Estate Investment Corp. (MNR), a REIT that invests in single tenant, industrial buildings and leased to investment-grade tenants; Annaly Capital Management Inc. (NLY), a mortgage REIT focused on investing in mortgage-backed securities (MBS) and commercial mortgage loans; and AGNC Investment Corp. (AGNC), a REIT that primarily invests in agency residential MBS on a leveraged basis.
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.