When most investors think of stock holding, what comes to mind is common stock, where owning a slice of the company entitles a shareholder to vote. Preferred stock on the other hand gives no voting rights to shareholders. Preferred shareholders also have priority over a company’s income, meaning they are paid dividends before common shareholders. Thus, preferred stock shares debt and equity characteristics all at once.
Like common stock, preferred stock is issued by a company and traded on an exchange. Preferred stock prices can fluctuate, but most of the returns from preferred stock come from dividends. Unlike common stock, preferred stock dividends are predetermined and paid at regular intervals. These dividends are paid in full before any dividends are released to common stockholders.
Preferred stock also acts like a bond. A par value is assigned on issue and this price rises or falls based on interest rates. When interest rates go up, the par value of the shares is diminished, just like bonds. Some preferred shares even have a maturity date where the investors’ capital is returned. Finally, some preferred shares are callable, meaning the company can decide at any time to repurchase the shares (although usually at a premium).
Here are 6 Preferred ETFs Up Double Digits in 2019:
1. Virtus InfraCap U.S. Preferred Stock ETF (PFFA)
Up 19.34% YTD (As of May 24, 2019)
The Fund seeks current income and, secondarily, capital appreciation through a portfolio of over 100 preferred securities issued by U.S. companies with market capitalizations of over $100 million. Key features of the fund include a focus on income, where the ETF offers the potential for attractive yields, while pursuing compelling total return results, in an active management style. The expense ratio is 2.13%.
2. InfraCap REIT Preferred ETF (PFFR)
Up 12.93% YTD (As of May 24, 2019)
The fund is the only ETF offering a diversified investment in preferred securities issued by Real Estate Investment Trusts (REITs). Key features of the fund include the fact that REIT preferreds tend to offer attractive yield potential, both fixed income and equity characteristics, and low equity beta. These securities are also typically exposed to less leverage with generally more predictable revenue streams than those issued by banks and insurance companies. The expense ratio is 0.45%
3. VanEck Vectors Preferred Securities ex Financials ETF (PFXF )
Up 11.71% YTD (As of May 24, 2019)
The VanEck Vectors® Preferred Securities ex Financials ETF (PFXF®) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Wells Fargo®Hybrid and Preferred Securities ex Financials Index. The Index is intended to track the overall performance of U.S.-listed preferred securities excluding those with a financial sector classification, including securities that, in Wells Fargo Securities LLC’s judgment, are functionally equivalent to preferred securities such as convertible securities, depository preferred securities and perpetual subordinated debt. The expense ratio is 0.41%.
4. Innovator S&P High Quality Preferred ETF (EPRF )
Up 11.48% YTD (As of May 24, 2019)
The Innovator S&P Investment Grade Preferred ETF is based on the S&P U.S. High Quality Preferred Stock Index, which selects floating, variable and fixed-rate investment grade preferred issues (BBB- or higher) from U.S. listed preferred stocks on a quarterly basis. The expense ratio is 0.47%.
5. Invesco Preferred ETF (PGX )
Up 10.42% YTD (As of May 24, 2019)
The Invesco Preferred ETF is based on The ICE BofAML Core Plus Fixed Rate Preferred Securities Index. The Fund will normally invest at least 80% of its total assets in fixed rate US dollar-denominated preferred securities that comprise the Index. The Index tracks the performance of fixed rate US dollar-denominated preferred securities issued in the US domestic market. (Securities must be rated at least B3, based on an average of three leading ratings agencies: Moody’s, S&P and Fitch) and must have an investment-grade country risk profile (based on an average of Moody’s, S&P and Fitch foreign currency long-term sovereign debt ratings). The Fund and the Index are rebalanced and reconstituted on a monthly basis. The expense ratio is 0.52%.
6. SPDR Wells Fargo Preferred Stock ETF (PSK )
Up 10.17% YTD (As of May 24, 2019)
The SPDR® Wells Fargo® Preferred Stock ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Wells Fargo® Hybrid and Preferred Securities Aggregate Index (the “Index”). The ETF seeks to provide exposure to preferred securities that are non-covertible, have a par amount of $25, and maintain a minimum par value of $250 million. The Index holdings are required to be rated investment grade by either Moody’s Investors Service, Inc. or Standard & Poor’s Financial Services, LLC. The expense ratio is 0.45%.
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