Back to top

Image: Bigstock

5 Preferred Stock ETFs Yielding 5% or More & Losing Little

Read MoreHide Full Article

Wall Street has been on a roller coaster ride due to the coronavirus outbreak. In the virus-infected past month (as of Mar 5, 2020), the S&P 500-based ETF (SPY - Free Report) , the Dow Jones-based (DIA - Free Report) and the Nasdaq-100-based (QQQ - Free Report) lost about 9.1%, 10.5% and 7.3%, respectively.

Meanwhile, the U.S. central bank cut the target range for its federal funds rate by 50 bps to 1-1.25% during an emergency move on Mar 3, addressing the possible economic fallout owing to the virus outbreak. It was the first emergency rate cut since the 2008 financial crisis (read: Emergency Fed Cut Less Effective: ETFs That Should Survive).

As of Mar 5, 2020, yield on the 10-year U.S. Treasury note was as low as 0.92%. Global growth worries and likely weakness in the upcoming corporate earnings may keep long-term interest rates low in the near term.

Investors must be looking for securities that have outperformed the broader equity indexes lately and also offer decent yields. One such area is preferred stock ETFs. The current combination of low rates and higher equity risks makes investing in this asset class as one of the most-favored practices.

Preferred Stock ETFs in Focus  

Not only do the preferred stocks offer considerably higher yields (often exceeding 5%), they also provide an opportunity for capital appreciation. They are hybrid securities having the characteristics of both debt and equity. The preferred stocks pay stockholders a fixed, agreed-upon dividend at regular intervals, like bonds.
 
Preferred stocks are thus quite stable and generally have a low correlation with other income generating segments of the market like REITs, MLPs, corporate bonds and TIPs.
 
Though investors can buy individual companies’ preferred stocks, buying preferred stock ETFs can be a very convenient way of investing in a basket of diversified companies at a low cost. Below we have highlighted five ETFs, which not only offer substantial yields but also provide a great opportunity for capital appreciation. These ETFs lost little in comparison to the S&P 500-based ETF SPY (down 8.1%).

ETFs in Focus

Innovator S&P High Quality Preferred ETF (EPRF - Free Report) – Down 1.8%, Yield 5.07% annually

The S&P U.S. High Quality Preferred Stock Index selects floating, variable and fixed-rate investment grade preferred issues (BBB- or higher) from U.S. listed preferred stocks on a quarterly basis. The fund charges 47 bps in fees.

First Trust Preferred Securities and Income ETF (FPE - Free Report) – Down 1.2%, 5.26% annually

This ETF is active and does not track a benchmark. The fund charges 85 bps in fees.

SPDR Wells Fargo Preferred Stock ETF (PSK - Free Report) – Down 1.4%, Yields 5.39% annually

The underlying Wells Fargo Hybrid and Preferred Securities Aggregate Index is a modified market capitalization weighted index composed of preferred stock and securities that are functionally equivalent to preferred stock. It charges 45 bps in fees.

Invesco Financial Preferred ETF (PGF - Free Report) – Down 1.6%, Yields 5.11% annually

The underlying Wells Fargo Hybrid and Preferred Securities Financial Index is a market capitalization weighted index designed to track the performance of preferred securities traded in the U.S. market. The fund charges 62 bps in fees.

Global X U.S. Preferred ETF (PFFD - Free Report) – Down 2.4%, Yields 5.48% annually

The underlying ICE BofAML Diversified Core US Preferred Securities Index invests in a broad basket of U.S. preferred stocks, providing benchmark-like exposure to the asset class. It charges 23 bps in fees.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>