Preferred stock ETFs may be a compelling opportunity for income investors.
The Invesco Preferred ETF (PGX ) is designed for investors looking for both income and capital appreciation. Preferred securities combine features of both equity and fixed income investments, offering the potential for generous monthly income.
Invesco’s PGX is up 13.5% year to date through September, and has returned 20.1% in a one-year period, each on a total return basis. The fund’s distribution rate is 5.5% as of September 20.
See more: Rate Cuts to be Catalyst for Small-, Mid-Cap Quality ETFs
What Are Preferred Securities?
Preferred securities are often overlooked, but they may be able to offer attractive tax-advantaged income potential, good credit quality, and diversification benefits.
Preferred stock in a company typically has a higher claim on dividends and assets than common equity shares (but lower than bonds). Similar to bonds, preferred securities offer a specified yield and par value, which limits potential losses.
Preferred stock is primarily issued by banks and other financial companies, but real estate, utilities, and others also issue preferreds.
Preferreds have historically had a volatility profile lower than that of stocks, while being just slightly above that of credit-sensitive high yield bonds.
Under the Hood of Invesco’s Preferred ETF
Invesco’s ETF is among the largest by assets under management in the preferred ETF segment, with $4.5 billion in assets.
Nearly 70% of PGX by weight is in preferreds in the financials sector, according to the fund’s website. Utilities, real estate, and communication services preferred comprise 11.2%, 7.6%, and 7.2% of the fund by weight.
The fund charges 50 basis points.
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