2025 marks a time of uncertainty for many investors—despite a stellar 2024 performance and a post-election rally that lasted through mid-December, the S&P 500 and the broader market face growing geopolitical turmoil and a potential shift in the regulatory environment for investors. many industries along with a new administration, uncertainty surrounding the near future of interest rates, the ongoing impact of the artificial intelligence revolution, and much more. It’s understandable that many investors may be on the defensive in the new year.
Preferred stocks are an often overlooked defensive play that can provide the potential for greater returns than bonds. These hybrid securities offer fixed income payments similar to bonds, as well as increased stability compared to common stocks, which rely on capital growth to make money for investors. Moreover, preferred bonds give investors superior dividend payment priority while maintaining liquidity compared to their bond counterparts.
For particularly cautious investors, a preferred stock ETF offers even more protection. Like other ETFs, these funds invest in preferred shares of a wide range of different companies, increasing diversification and further risk management while providing stable dividend payments.
Why the iShares Preferred and Income ETF is Leading the Market
iShares Preferred and Income ETFs Today
iShares Preferred and Income ETF
As of 01/13/2025 16:00 Eastern
- 52 week range
- $30.56
▼
$33.59
- Dividend yield
- 6.40%
- Assets under management
- $14.58 billion
Among the relatively small number of preferred stock ETFs, iShares Preferred ETF and Income Securities ETF stand out. NASDAQ: PFF has the largest asset base, US$14.7 billion as of January 9, 2025, and a significantly higher average trading volume than many competitors. This fund provides exposure primarily to financial institutions (one of the most common sectors in which preferred shares can be found), as well as industrials, utilities and occasional firms in other sectors.
PFF is somewhat diversified across sectors and more so across individual names, with approximately 450 companies in its portfolio. Its annual dividend yield is a competitive 6.3% and its expense ratio is 0.46%, which is impressive for this fund category. However, investors should note that the fund’s strong exposure to financial companies could skew the broader portfolio if they are not careful.
What makes First Trust Preferred Securities different from an Income ETF?
First Trust preferred securities and income ETF today
First Trust preferred securities and income ETF
As of 01/13/2025 16:10 Eastern
- 52 week range
- $16.82
▼
US$18.23
- Dividend yield
- 5.48%
- Assets under management
- $5.72 billion
First Preferred Securities Trust Fund and Income ETF NYSEARCA:FPE is not focused strictly on preferred stocks—it also includes income-producing debt securities such as corporate bonds and convertibles. It’s also an actively managed fund and, unsurprisingly, it will cost investors a premium with a higher expense ratio of 0.85%.
Similar to PFF described above, FPE focuses primarily on banks, insurance companies and other financial companies, although it also invests in energy companies, utilities, food companies and more. The advantage of FPE is that it aims to generate total returns in addition to dividend income. For example, in the year leading up to January 8, 2025, it returned about 11%. While this figure is lower than the broader market over this period, it is higher than PFF and many other preferred stock ETFs. FPE balances this yield with an annual dividend yield of 5.67%, giving investors two ways to profit.
Invesco Preferred ETF Focuses on High Quality Assets
Invesco Preferred ETF Today
Invesco Preferred ETF
As of 01/13/2025 16:10 Eastern
- 52 week range
- $11.23
▼
$12.54
- Dividend yield
- 6.29%
- Assets under management
- $4.39 billion
Invesco Preferred ETF NYSEARCA:PGX takes an unusual approach to building a portfolio of preferred securities. It tracks an index of US-issued dollar-denominated fixed rate preferred securities rated at least B3 based on the average ratings of Moody’s, S&P and Fitch. PGX does not own all the securities included in this index, but instead uses a sampling method to select approximately 525 assets. It is noteworthy that this holding figure represents approximately 80 individual companies, since many firms have multiple types of preferred stock in their portfolio.
PGX offers a relatively competitive expense ratio of 0.50% and an annual dividend yield of 5.86%, but where it really shines is its trading volume. For investors looking to actively trade PGX stock, this fund has the highest average trading volume of any preferred stock ETF, in most cases by a very wide margin.
Preferred Shares: A Powerful Tool for Diversified Stock Investing
Many investors overlook preferred stocks, but these specialized securities combine the best of the worlds of stocks and bonds into one package. For those aware of the benefits and potential risks of preferred stocks, a dedicated ETF can be an efficient and effective way to include them in a broader portfolio.
Before you consider the iShares Preferred and Income Securities ETF, you might want to hear this.
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