Consider PFXF For Safety And Yield

| About: VanEck Vectors (PFXF)
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The Brexit effect is yet to be over with high anxiety across the world.

The global concerns have a severe impact on the financial sector.

Here is a preferred stock ETF that is not exposed to the financial sector and delivers sound income.

The equity markets have been very hectic since the Brexit vote. As I am writing these lines the S&P 500 is straggling to hold the 2,000 points line. The drop in the markets is driven by growing concerns over a slowdown in the global economy and therefore one of the most bitten sector this time is the financial sector.

The financial sector in the U.S. is highly correlated to the non-U.S. financial sectors as these systems are tightly coupled and have cross-dependencies. As the situation in Europe seems to get out of end there is an immediate reaction in the U.S. as well.

The next graph demonstrates the correlation between these two where the U.S. Financial sector is represented by the Financial Select Sector SPDR ETF (XLF) and the International Financial sector by the SPDR S&P International Financial Sector ETF (NYSEARCA:IPF).

Being so sensitive to the global economic situation the Financial sector had a poor performance compared to the overall market.

The next graph compares the behavior of the SPDR S&P 500 Trust ETF (NYSEARCA:SPY) to XLF during the last six months. While the S&P 500 lost 4%, the Financial sector lost 11% and with a higher volatility.

As the financial equities are trending downwards the income investors that are looking for a safe haven in Preferred stock ETFs might be concerned due to the fact that there is a high exposure within the Preferred stocks ETF to the Financial sectors preferred stocks.

The next graph illustrates the similar trend, though not at the same magnitude of XLF and the biggest preferred stock, the iShares U.S. Preferred Stock ETF (NYSEARCA:PFF).

Based on Yahoo finance PFF has 96% of PPF's holdings are from the financial sector and only fractions of percent are holdings from the Industrial and the Energy sectors.

The second biggest Preferred stock ETF is the PowerShares Preferred Portfolio ETF (NYSEARCA:PGX). Very similar to PFF's holding distribution, the vast majority of PGX's holdings are from the financial sector (81% of the holdings).

This was more or less the same across the rest of the Preferred stock ETFs list until I reached the VanEck Vectors Preferred Securities ex Financials ETF (NYSEARCA:PFXF).

This ETF which is relatively small in size with a total assets of ~$400M replicates the price and yield performance of Wells Fargo Hybrid and Preferred Securities ex Financials Index.

Based on Yahoo Finance its holdings list is tending towards the Utilities and Communication Services sector.

The ETF is charging 0.4% per year as managerial fees which is the lowest of its peers and based on a $1.15 per share dividend it delivers a 5.6% dividend yield.

Based on Ychart the ETFs yield was higher during the pullback of December 2015 to February 2016 at ~6%. This was driven by the concerns during the days of the first interest rate hike back in December and the declaration that it would be followed by four hikes this year.

Investors who are doubtful about the FED's ability to take action in the foreseen future might feel comfortable with these levels of income.


Income investors might find preferred stocks ETF a good investment during these times of high volatility and global instability which have severe effects on the equity markets and especially on the financial sector's performance.

At a price of $20 which translate to higher than 5% dividend yield PFXF could be a great solution for investors who are looking for a relatively safe investment with a stable income stream.

As always, I appreciate your feedback.

Happy investing.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in PFXF over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.