Preferred Stock ETFs to Buy Now: A Complete Guide

Regarding what investors plan to include in their portfolios, preferred stocks often don't even place in the top three. Income investors should consider preferred equities and exchange-traded funds (ETFs) that invest in preferred stocks if they are not already doing so. Regarding dividends and asset distribution, preferred stockholders have a greater priority claim than common stockholders.

Preferred stockholders get priority in receiving distributions in the case of company liquidation. However, there is a price to pay for these conveniences: Many holders of preferred stock do not have voting rights, and their shares are less likely to increase in value.

Exchange-traded funds (ETFs) that focus on favored stocks are one option for investors. Preferred stock exchange-traded funds allow investors to profit from several different stocks simultaneously while spreading their money across many different businesses.

What Are The Preferred Stock ETFs?

Preferred stock combines features of debt and equity. Preferred stock is issued by a corporation and traded on an exchange like common stock. Although preferred stock price movements are possible, dividends are where the real money is made with preferred shares.

Dividends on preferred stock, instead of common stock, are fixed and paid regularly. The dividends owed to preferred stockholders are settled first. The purpose of preferred stock is similar to that of a bond.

When issued, bonds have a par value that may increase or decrease due to fluctuations in interest rates. Shares are similar to bonds in that their face value declines as interest rates rise. Preferred shares may or may not have a maturity date at which investors recoup their initial investment.

Certain preferred shares are "callable," which means the firm can repurchase them at any moment (although usually at a premium). Common shareholders get dividends after preferred shareholders, while preferred shareholders are given priority in the case of a liquidation. Bondholders will be compensated before preferred shareholders in the event of bankruptcy. Common stockholders receive any leftovers.

5 Best Preferred Stock Etfs

Here you can find the best preferred stock ETFs list.

Global X Variable Rate Preferred ETF

The Global X Variable Rate Preferred ETF is one of the few exchange-traded funds (ETFs) that focuses solely on variable rate preferred stocks, also known as preferreds, that do not have a fixed interest rate and, therefore, may provide investors with lower volatility in response to changes in interest rates.

Yet, this does not imply that preferred stocks with a variable interest rate will increase in value when rates increase. That is not the case, as evidenced by PFFV's year-to-date decline; nonetheless, investors will not have to give up yield to participate in this ETF, as it yields 6.69%.

VanEck Preferred Securities ex Financials ETF

As its name suggests, the VanEck Preferred Securities ex-Financials ETF stands out from other preferred ETFs by omitting holdings in preferred equities issued by financial services firms. That's not typical, given the industry's dominant position as a preferred equity issuer.

Although it does not invest in bank-issued preferred stocks, PFXF has many of the same characteristics as other preferred stocks in this category, such as a high yield, potential for appreciation, and the chance of bouncing back after a bad year. In retrospect, it seems plausible.

The Ishares U.S. Preferred ETF

With over $14 billion in assets under management, the iShares U.S. Preferred ETF is not only the largest but also one of the oldest products in the industry, having been established in 2007. Institutional investors greatly benefit from this level of liquidity because preferred stocks are rarely traded.

Although PFF's expenditure ratio is lower than average at 0.46 percent, it lacks liquidity compared to comparable funds. Almost 3 million shares are traded daily, more than all other funds on this list. Like many others, this fund bases its performance on the S&P U.S. Preferred Stock Index and closely follows it thanks to tight spreads. The ability to trade huge amounts of PFF at low costs attracts institutional investors.

SPDR ICE Preferred Securities ETF

PSK, which follows the ICE Exchange-Listed Fixed & Adjustable Rate Preferred Securities Index, is a good option for those who want a more discerning preferred stock ETF. Non-convertible, dollar-denominated preferred stocks with a $25 par value that trade on the NYSE or the NASD and receive an investment-grade rating from Moody's or Standard & Poor's are eligible for inclusion.

In addition, there must be at least 18 months till maturity and a trading volume of at least 250,000 units in the previous six months. PSK, like many other ETFs here, has a hefty weighting in preferred securities issued by financial institutions (71.8%), followed by utilities (13.2%). The 30-day SEC yield on the ETF is 6%, and the cost ratio is 0.45%.

Global X SuperIncome Preferred ETF

Although the Global X SuperIncome Preferred ETF has the highest expense ratio of our picks, it also includes only the highest-quality preferred shares. The fund has just fifty of the best-yielding U.S. and Canadian preferred equities.

The fund has less than $200 million in assets and an average daily trading volume of fewer than 90,000 shares, resulting in an expense ratio of 0.58%. This fund could be a good option for a long-term, buy-and-hold investor looking for a high return.

Conclusion:

Preferred stock is a cross between a bond and a stock in that it combines the features of each. Unlike common shares, which often have voting rights, these assets do not, but they make up for this in other ways.

It's important to note that preferred equities typically generate more stable income than common dividend stocks or even corporate bonds. The many advantages of preferred stock ETFs taxation versus trading in regular stocks keep investors intrigued. Preferred stock is more secure than regular stock but has some drawbacks.