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.

BREAKING DOWN '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.

  1. Preferred Stock

    A class of ownership that has a higher claim on assets and earnings ...
  2. Prior Preferred Stock

    A type of preferred stock with a higher claim on assets and dividends ...
  3. Preferred Dividend

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

    A type of preferred stock that gives the holder the right to ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before ...
  6. Preferred Dividend Coverage Ratio

    The preferred dividend coverage ratio is the ratio that measures ...
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  1. How does preferred stock differ from company issued bonds?

    Discover the primary differences between preferred stock and corporate bonds, two income-generating investment vehicles issued ... Read Answer >>
  2. What are the advantages and disadvantages of preference shares?

    Preference shares have advantages and disadvantages for both investors and issuing companies. Read Answer >>
  3. Why would a company issue preference shares instead of common shares?

    Learn about some reasons that corporations might issue preference shares, and why investors might value them more than common ... Read Answer >>
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