PFF: Financials Preferred Shares Are Now Stretched (Rating Downgrade)
Summary
- The iShares Preferred and Income Securities ETF is a fixed income ETF focused on financials preferred equity.
- Financials common equity and preferred shares have rallied significantly in the past months, on the back of an easing in macro financial conditions.
- PFF has a 6.4% yield on a 12-month trailing basis, and 6.6% on a 30-day SEC yield basis, which are beginning to look stretched from a risk/reward perspective.
- The upcoming expiration of the Bank Term Funding Program in March 2024 is highlighted as a potential risk, as it removes one of the current liquidity backstops.
- The thesis points out that other investment opportunities with similar yields may offer better risk/reward profiles. Examples include JPMorgan Income ETF and iShares Floating Rate Bond ETF.
Analyst’s Disclosure:I/we have a beneficial long position in the shares of PFF either through stock ownership, options, or other derivatives. 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.
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