The following table shows the trend scores of dividend ETFs we track.
|Assets Class||Symbols||02/02 |
|iShares Dow Jones US Real Estate||IYR||11.12%||10.74%||^|
|SPDR S&P 500||SPY||9.92%||10.47%||v|
|SPDR DJ Wilshire Intl Real Estate||RWX||8.92%||10.32%||v|
|iShares Dow Jones Intl Select Div Idx||IDV||8.76%||8.61%||^|
|Vanguard High Dividend Yield Indx||VYM||8.69%||9.41%||v|
|Vanguard Dividend Appreciation||VIG||7.98%||9.17%||v|
|PowerShares Intl Dividend Achievers||PID||7.98%||8.91%||v|
|iShares MSCI EAFE Index||EFA||7.3%||7.58%||v|
|First Trust Value Line Dividend Index||FVD||7.07%||7.48%||v|
|iShares Dow Jones Select Dividend Index||DVY||6.94%||7.23%||v|
|SPDR S&P Dividend||SDY||5.99%||6.56%||v|
|PowerShares HighYield Dividend Achievers||PEY||5.64%||6.49%||v|
|iShares MSCI Emerging Markets Index||EEM||4.4%||7.24%||v|
|iShares S&P U.S. Preferred Stock Index||PFF||2.11%||3.3%||v|
The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).
From the above table, we again observe Preferred Stock Index (PFF) is the laggard, being ranked at the bottom. However, one should note that our trend scores show short to intermediate term trends. If we expand the time horizon, a different picture emerges.
iShares PFF is designed to track S&P U.S. preferred stock index. Based on the S&P document, the index is market capitalization weighted on U.S. preferred stocks that have at least $100 million market cap and meet certain liquidity criteria.
Preferred stocks are hybrids between common stocks and bonds. Shareholders of preferred stocks usually receive guaranteed dividends and in the event of company liquidation (bankruptcy), they have higher priority over common stock shareholders to claim the assets. Many preferred stocks can be convertible to common stocks (under certain conditions), thus creating capital appreciation upside (Warren Buffett's purchase of Goldman Sachs convertibles during the financial crisis is a good example).
One of the major drawbacks of preferred stocks is their liquidity: they are certainly less liquid compared with common stocks. A perferred stock ETF is thus less diversified than a normal common stock ETF.
The following table show the annual performance of PFF and SPY since PFF's inception (4/18/2007) to 2/9/2011.
The table clearly shows that PFF has out performed SPY since its inception. The dual properties (common stock and bond) were more resilient to market stress.
To summarize, preferred stocks are down but not out. Income seeking investors should include such ETFs in their portfolios. On the other hand, a systematic fund selection method such as the asset allocation strategies in Retirement Income Plan should be employed so that one can take advantage of the uniqueness of preferred stocks in a portfolio.