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.

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  2. Prior Preferred Stock

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RELATED FAQS
  1. What are some examples of preferred stock, and why do companies issue it?

    Understand the difference between preferred stock and common stock, and learn the primary reasons why companies issue preferred ... Read Answer >>
  2. What are the advantages and disadvantages of preference shares?

    Learn about the advantages and disadvantages of preference shares for both investors and issuing companies. Read Answer >>
  3. Does issuing preferred shares offer a tax advantage for corporations?

    There is no direct tax advantage to the issuing of preferred shares when compared to other forms of financing such as common ... Read Answer >>
  4. 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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