Market Vectors Preferred Securities ex Financials ETF (PFXF), which launched on July 17, is designed to track the Wells Fargo Hybrid and Preferred Securities ex Financials Index (PFXF overview). Wells Fargo defines the Financials sector differently from the better-known GICS scheme. GICS considers Insurance and REITs to be part of the Financials sector. Wells Fargo and PFXF classify these two industries elsewhere. This creates the odd discrepancy of an ETF with “excluding Financials” in its name which holds 37% in the sector, based on the more popular GICS definition.
According to the PFXF fact sheet (pdf), the underlying index consists of 68 securities with an average current yield of 6.8%. Industry breakdown includes REITs at 30.8%, Electric Utilities 26.3%, Auto Manufacturers 12.0%, Telecommunications 7.6%, Insurance 6.1%, and Energy 5.2%.
PFXF caps its expense ratio at 0.40%. Van Eck Global, the ETF sponsor, provides additional information in the Investment Case: Preferred Securities ex Financials (pdf).
Analysis/Opinion: Preferred stock funds are notorious for extremely large allocations to the Financials sector, often above 80%. This comes with the territory; most preferred-stock issuers happen to belong to the Financials sector. PFXF attempts to improve the situation by excluding what it defines as the Financials sector. Investors should be aware that the allocation might be 37% by other definitions. Still, PFXF makes a solid attempt to differentiate itself from other offerings.
The 0.40% expense ratio makes PFXF the lowest cost ETF in the preferred class, and puts the fund’s estimated yield at 6.4%. If your interest in preferred securities is based on an anticipated rebound in the Financials sector, PFXF is probably not for you. If you have been avoiding preferred funds because of their high Financials exposure, then PFXF is worth a look.
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.