Preferred Stock ETFs vs. Bond ETFs: An Overview

Investors in preferred stocks and in corporate bonds have similar motivations. They're looking for a long-term investment with a reasonable and regular return on their money.

Today's investors can choose exchange-traded funds (ETFs) that focus on preferred stocks or corporate bonds. Whether you choose one or the other should be based on the current economic environment as well as your investment strategy.

• If you’re looking for high yield, consider a preferred stock ETF. This is especially true in times when interest rates are low. Preferred stock ETFs are considered higher quality than common stock ETFs because of their relative lack of risk. You will have priority over common shareholders for 澳洲幸运5官方开奖结果体彩网:dividends and any claims on assets. However, preferred stock ETFs usually underperform equity ETFs during 澳洲幸运5官方开奖结果体彩网:bull markets.
• Most bond ETFs offer a diversified portfolio of bonds, excellent 澳洲幸运5官方开奖结果体彩网:liquidity, and low expenses. One of the bond ETFs covered below should clearly offer the most long-term potential regardless of how the broader stock market is performing.

Preferred Stock ETFs

From the investor's viewpoint, 澳洲幸运5官方开奖结果体彩网:preferred stocks are a blend of a bond and a stock. Their prices aren't volatile like common stock shares. The point is the dividends these shares pay. They also are considered safer than common stocks. Even in the event of bankruptcy, preferred shareholde🏅rs are closer to the front of the line for repayment than common💮 shareholders.

Preferred stock ETFs give the investor exposure to a range of preferred stocks, thus diversifying your portfolio.

Let’s start with a q💖uick look at two of the most popular ෴preferred stock ETFs.

Invesco Preferred ETF (PGX)

Tracks the ICE BofAML Core Plus Fixed Rate Preferred Securities Index. Financials as of Dec. 15, 2023.

• Total Assets: $4.51 billion
• 30-Day Average Volume: 5,653,676
• Expense Ratio: 0.50%
• 12-month Distribution Rate: 6.32%
• Inception Date: Jan. 31, 2008
• 3-Year Performance: -3.73%

iShares US Preferred Stock (PFF) ETF 

Tracks the S&P U.S. Preferred Stock Index. Financials as of Dec. 15, 2023.

• Total Assets: $13.46 billion
• 30-Day Average Volume: 4,762,767
• Expense Ratio: 0.46%
• 12-month Trailing Yield: 6.87%
• Inception Date: March 26, 2007
• 3-Year Performance: -1.39%

The appreciation and high yield for the two preferred stock ETFs above might be tempting, but when interest rates increase they’re not likely to perform as well. Both also performed poorly during the 澳洲幸运5官方开奖结果体彩网:financial crisis, demonstrating a lack of resiliency. 

Bond ETFs

A bond is a loan to a corporation in return for a regular payment of interest. As with preferred stocks, the point of bonds, to the investor♈, is the regular income they generate.

All bonds are rated by one of sever𒅌al rating agencies for the creditworthiness of the companies that issue them. The highest-rated bonds may pay the least but are the safest💫. Low-rated bonds are riskier but pay better.

So-called "junk bonds" are at high risk of default by their issuers.

SPDR Bloomberg Baꦛ🃏rclays High Yield Bond ETF (JNK)

Tracks the Bloomberg High Yield Very Liquid Index. Financials as of Dec. 15, 2023.

• Total Assets: $8.6 billion
• Average Volume: 7,087,803
• Expense Ratio: 0.40%
• 12-month Yield: 6.60%
• Inception Date: Nov. 28, 2007
• 3-Year Performance: 0.95%

iShares 20+ Year Treasury Bond (TLT)

Tracks the Bloomberg Long U.S. Treasury Index. Financials as of Dec. 15, 2023.

• Total Assets: $51.33 billion
• 30-Day Average Volume: 49,313,246
• Expenses: 0.15%
• 12-month Trailing Yield: 3.64%
• Inception Date: July 22, 2002
• 3-Year Performance: -15.12%

Still, these two choices illustrate the many situations in which yield or lack of it can be deceiving. Most investors chase high yield, not realizing that they’re often putting themselves more at risk for 澳洲幸运5官方开奖结果体彩网:depreciation. A high yield doesn’t mean anyဣthing i🅰f an ETF’s shares slide.

That’s t☂he beauty of TLT. The yield might not be extraordinary (still relatively generous), and it tends to appreciate during ෴difficult times because big money rushes to safety. 

Note that JNK is not a symbol selected 🦩for a fund that invests in the highest-quality AAA-rated b𝕴onds.

The Bottom Line

Preferred stock ETFs are more appealing in low-interest rate times thanks to their high yields, but they’re not likely to appreciate as much as ETFs tracking common ওshares during bull markets.

Bond ETFs have a reputation for offering greater safety, but it depends on the bond ETF. For instance, JNK offers a high yield, but it’s not a place be during poor economic periods when defaults are more likely. TLT might not offe෴r as much yield, but it offers resiliency and the low expense ratio is a bonus.