In the ongoing search for yield, investors have touched upon preferred stocks, but most preferred stock exchange traded funds are highly exposed to the financial sector. Van Eck's ETF unit Market Vectors is trying to fill the need, launching a fund that specifically excludes financials.
Market Vectors Preferred Securities ex-Financials ETF (NYSEArca: PFXF) started trading Tuesday.
The ETF will try to reflect the performance of the Wells Fargo Hybrid and Preferred Securities ex Financials Index, which follows the overall performance of publicly traded non-financial preferred securities, such as convertible securities, depository preferred securities and perpetual subordinated debt. PFXF has an expense ratio of 0.40%.
Preferred stocks have a higher claim on assets and earnings than common stocks and dividends are paid to preferred shares before common stocks. However, preferred shareholders do not have voting rights and have a lower potential for capital appreciation.
Top holdings include: General Motors Co 12/01/13 maturity 10.1%, PPL Corporation 7/1/13 maturity 3.7%, Apache Corp 8/1/13 maturity 3.7%, United Technologies 8/1/15 maturity 3.5% and PPL Corporation 5/1/14 maturity 3.2%.
According to S&P ratings, credit quality breakdown includes: AA 2.0%, BBB 41.1%, BB 18.2%, B 2.5%, CCC 1.0%, with 43.1% in investment grade and 21.6% in speculative grade.
Sector allocations include: REITs 30.8%, electric 26.3%, auto manufacturers 12.0%, telecom 7.6%, insurance 6.0%, oil & gas 5.2%, aerospace & defense 3.5%, mining 2.0%, sovereign 1.9%, media 1.8% and other 2.9%.
Dividends will be paid on a monthly basis.
In the meantime, investors may browse through current ETF options available that also track preferred stocks:
- iShares S&P US Preferred Stock Index (PFF): 5.89% yield.
- PowerShares Preferred Portfolio (PGX): 6.44% yield.
- PowerShares Financial Preferred Portfolio (PGF): 6.72% yield.
- SPDR Wells Fargo Preferred Stock ETF (PSK): 6.3% yield.
- iShares &P International Preferred Stock Index Fund (IPFF): 30-day SEC yield 3.25%.
- Global X Canada Preferred ETF (CNPF): 3.91% yield.
Max Chen contributed to this article.
Additional disclosure: Tom Lydon's clients own PGF.