With consumer prices continuing to push higher, inflationary pressures are keeping fixed income investors on their toes, but there are options such as preferred stock dividend exposure.
Inflation can add a large dose of worry to a fixed income investor’s portfolio, eroding income over time. That becomes especially disconcerting if inflation becomes more persistent instead of transitory.
Investors have a wide array of options when it comes to trying to outpace inflation, which can include adding precious metals or even digital assets as cryptocurrencies start to gain more popularity amongst investors. Another way is to try and get the highest yield possible, but that also involves taking on more credit risk.
Yields outside the U.S. can also be an option, but with the pandemic in tow, it also poses a risk to global markets. Another option is to strategically maintain fixed income exposure in the U.S. via dividends from preferred stock.
1 Dividend ETF to Prefer
Getting this type of preferred stock exposure is available with the Global X U.S. Preferred ETF (PFFD ). The fund seeks to provide investment results that correspond generally to the price and yield performance of the ICE BofA Diversified Core U.S. Preferred Securities Index, which is designed to track the broad-based performance of the U.S. preferred securities market.
“Preferred stock is often analyzed alongside corporate & high yield bonds because of its yield-focused characteristics and fixed income-like behavior,” Global X research notes. “Preferreds sit junior on the capital structure to traditional bonds, and trade on an exchange offering additional liquidity.”
“For portfolio construction purposes, we believe they should be considered alongside corporate debt, high yield, and other income-generating asset classes like emerging market bonds and senior loans as a source of potential income,” Global X adds. “Particularly when compared to corporate debt, we believe now may be the time to rotate money away from the more traditional portions of the fixed income market and into preferreds.”
Overall, PFFD offers investors:
- High income potential: PFFD invests in a broad basket of preferred stock in the U.S., an asset class that has historically offered high yield potential.
- Low expense ratio: PFFD’s expense ratio of 0.23% is less than half the competitor average.
- Monthly distributions: PFFD makes distributions on a monthly basis.
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