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  • Can Regular Income Be Created With A Preferred Stock ETF? 0 comments
    May 4, 2013 6:16 AM

    Investors from different spheres of life and age groups have one aim which is to generate income from least risk taking. The old folks nearing retirement prefer regular pay outs as their other sources of income creation have practically ceased to exist due to some obvious factors. In fact monthly dividends and an increased yield are need of every portfolio holder, who is now taking solace in preferred securities ETF that have showered a continuous monthly pay out on the investors.

    The ETFS tracking preferential equity is on the rise. And investors are getting a fair taste of up to twelve times pay of dividends in a year. Many small and mid-cap stocks offer such pay outs and primarily the bank cumulative stocks that deliver high yields of up to seven percent.

    Traders / investors must beware of certain dynamics such as slowing economic growth rate and Federal rate soaring etc and these have a direct and adverse effect on the assets of most preferred stock mutual funds.

    Investing in individual companies can leave a bad taste due to their tendency of fluctuating dividend yields. Therefore investing in a basket of these stocks through an Exchange traded fund (NYSEMKT:ETF) is a far better and less complicated affair.

    Preferred shares bear a resemblance to bonds and some characteristics of it look like stocks. It pays steady dividends like bonds and in the way of equity, trades on an exchange although not as liquid as common stocks, similarly they may also grow in value.

    Another point needs to be highlighted regarding a big difference between preferential and common shareholders. The favoured as the word suggests gives greater priority to its shareholders when it comes to distributions and right on the firm's incomes.

    A global Preferred Securities ETF or an Income fund follow a valid index that will try to track the top most yielding preference stocks from the world though such equity normally comes from the Canadian finance world which boasts of some of the biggest and best organized banks of the world and similar American stocks too, contribute to a sizable chunk of this asset class.

    While picking a right ETF, investors should examine the industry wise holdings and Financials must always be the dominant sector. A near negligent holding may fall in Telecommunication where certain preference equity has delivered impressive payouts.

    Annual expenses is another pre investment details although total yearly expenses between .50% - .60% seems to be a given for such funds.

    Historical performance data of any such equity is a proven method to assign risk value to your investment. The amount of dividends or the frequency of it also helps in creating a reasonable expectation level for the investors. However the same analysis can't be performed on the related equity funds as being fairly new products, there is simply not enough past data available to evaluate them on traditional terms.

    So, rather one may decide on a fund basis the performance of its assets and here, the steering capabilities of the fund managers are also of utmost importance.

    Apart from the monthly pay outs, preferred equity funds even enable a better risk tolerance as the related stocks are much more stable than their market traded counterparts and vis-à-vis common stocks; both, their upsides and down sides are limited whether the markets are in rally or otherwise.

    Folks aiming at a regular income for whatever reasons, may consider preferred stock ETF but must ensure that maximum weight age come from the North American continent.

    Preferred Securities ETF [SPFF] is attuned to the S & P high yield preferred ETF and delivers as per the yield of its close to 41 stocks at an annual expenses of 0.58%. SPFF fund comprises of the uppermost yielding stocks / securities (that are based in United-states and Canada) and distributes monthly cash. The Financial sector dominates the above mentioned fund with more than 88 % allocated to it. Credit Suisse, American International Group, HSBC Holdings and JP Morgan Chase are the top four assets for this preferred equity fund.

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