It’s little surprise that income hunters have turned to preferred securities—hybrid investments that are part bond, part stock. Over the first nine months of 2012, investors poured $518 million more into PowerShares Preferred Portfolio (symbol PGX) than they took out. Their interest wasn’t a surprise in light of the exchange-traded fund’s hefty 6.5% yield.
In response, PowerShares decided to adopt a broader underlying index—the BofA Merrill Lynch Core Plus Fixed Rate Preferred Securities index—to expand the available choices of preferreds. The new benchmark allows the fund to invest in companies with below-investment-grade ratings (double-B and lower), a category its previous index barred.
The move doesn’t appear to have made the ETF appreciably riskier, at least in comparison with its biggest rival. More than half of PowerShares’ assets sit in investment-grade preferreds; 39% are in preferreds rated double-B and lower, as well as unrated issues. By contrast, iShares S&P U.S. Preferred Stock Index has 45% of its assets in investment-grade preferred shares, 35% in junk-rated securities and 20% in “other.”
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But preferreds come with other risks. Most are issued by financial firms. Plus, they typically lose value when interest rates rise. But with the Federal Reserve pledging to keep rates down indefinitely and the financial sector in recovery, preferred-stock ETFs look appealing.
Kiplinger's Investing for Income will help you maximize your cash yield under any economic conditions. Subscribe now!
-
How Lower Interest Rates Affect Your Finances: Credit Cards, Car Loans and MortgagesThe Fed's rate cut will provide relief for some borrowers, but savers will have to work harder to get decent returns.
-
Four Ways to Maximize Your 401(k) Contributions Before the Year EndsTo maximize your 410(k) contributions in 2024, assess how much you’ve contributed so far, check your employer’s match, take a look at your budget and consider increasing how much you set aside per paycheck.
-
The 5 Best Actively Managed Fidelity Funds to Buy Nowmutual funds In a stock picker's market, it's sometimes best to leave the driving to the pros. These Fidelity funds provide investors solid active management at low costs.
-
The 12 Best Bear Market ETFs to Buy NowETFs Investors who are fearful about the more uncertainty in the new year can find plenty of protection among these bear market ETFs.
-
Don't Give Up on the Eurozonemutual funds As Europe’s economy (and stock markets) wobble, Janus Henderson European Focus Fund (HFETX) keeps its footing with a focus on large Europe-based multinationals.
-
Best Bond Funds to BuyInvesting for Income The best bond funds provide investors with income and stability – and are worthy additions to any well-balanced portfolios.
-
Vanguard Global ESG Select Stock Profits from ESG Leadersmutual funds Vanguard Global ESG Select Stock (VEIGX) favors firms with high standards for their businesses.
-
Kip ETF 20: What's In, What's Out and WhyKip ETF 20 The broad market has taken a major hit so far in 2022, sparking some tactical changes to Kiplinger's lineup of the best low-cost ETFs.
-
ETFs Are Now Mainstream. Here's Why They're So Appealing.Investing for Income ETFs offer investors broad diversification to their portfolios and at low costs to boot.
-
Do You Have Gun Stocks in Your Funds?ESG Investors looking to make changes amid gun violence can easily divest from gun stocks ... though it's trickier if they own them through funds.
