Investors looking for a duality of income and price appreciation can look at preferred stock. Fortunately, Global X offers an exchange traded fund (ETF) that can provide investors with easy access to these equities.
The bond and stock markets have both been tricky asset classes to navigate, given inflation pressures in the current market environment. Nonetheless, preferred stock can exhibit the characteristics of both, offering fixed income investors a fixed flow of capital while potentially gaining upside should the stock market turn around from a rough first half of 2022.
“Preferred stock is a type of stock that has characteristics of both stocks and bonds,” Bankrate explained. “Like bonds, preferred shares make cash payouts, often at a higher yield than bonds, while offering higher dividend returns and less risk than common stock.”
“Preferred stock looks much like a bond: It pays a contractual dividend, has a par value (or face value) can be redeemed early (often after five years) and may have a fixed maturity date,” Bankrate added.
Preferred Stock in 1 ETF
Getting this type of preferred stock exposure is available with the Global X U.S. Preferred ETF (PFFD). The fund seeks to provide investment results that correspond generally to the price and yield performance of the ICE BofA Diversified Core U.S. Preferred Securities Index, which is designed to track the broad-based performance of the U.S. preferred securities market.
“Preferred stock is often analyzed alongside corporate & high yield bonds because of its yield-focused characteristics and fixed income-like behavior,” Global X research noted. “Preferreds sit junior on the capital structure to traditional bonds, and trade on an exchange offering additional liquidity.”
“For portfolio construction purposes, we believe they should be considered alongside corporate debt, high yield, and other income-generating asset classes like emerging market bonds and senior loans as a source of potential income,” Global X added. “Particularly when compared to corporate debt, we believe now may be the time to rotate money away from the more traditional portions of the fixed income market and into preferreds.”
Overall, PFFD offers investors:
- High income potential: PFFD invests in a broad basket of preferred stock in the U.S., an asset class that has historically offered high yield potential.
- Low expense ratio: PFFD’s expense ratio of 0.23% is less than half the competitor average.
- Monthly distributions: PFFD makes distributions on a monthly basis. (The fund’s 30-day SEC yield is just under 6% as of July 12.)
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