ETF Spotlight on PowerShares Preferred Portfolio (NYSEARCA:PGX).
Assets: $1.4 billion.
Objective: The PowerShares Preferred Portfolio tries to reflect the performance of The BofA Merrill Lynch Core Fixed-Rate Preferred Securities Index, which holds a diversified group of investment-grade preferred securities.
What You Should Know
- PGX has an expense ratio of 0.50%.
- The fund has 81 holdings.
- The ETF has a yield of about 6.7%.
- Trailing returns: 1-month 0.25%, 3-month 0.63%, year-to-date 4.56% and 1-year 8.57%.
- Preferred stock is issued by financial institutions, utilities and telecom companies, said Timothy Strauts for Morningstar. Investors have no voting rights, but they will have priority over common stock in dividend payouts because preferred stock is senior in the capital structure to common stocks.
- Preferred stock tends to have long maturities of over 20 years and is priced like long-term corporate bonds, but with a higher credit risk.
- Preferred equity securities “offer high and consistent yields and are safer than common stock but are still more volatile than bonds,” Strauts added.
The Latest News
- Since financial institutions account for over 85% of preferred stocks, the housing market, U.S. economy and Europe’s sovereign debt will be factors to watch as they will affect preferred stock prices and the credit quality of the financials sector.
- Eurozone banks also make up a major stake in preferred stock ETFs. E.U. banks have been given a small reprieve to raise more capital and prepare for restructuring Greek debt. An exacerbation in the eurozone sovereign debt problem poses the biggest risk to preferred stock investors.
- The Dodd-Frank Act and Basil III rules will require banks to raise Tier 1 capital levels and remove preferred stocks as a form of Tier 1 capital by 2013.
PowerShares Preferred Portfolio
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Max Chen contributed to this article.