In these uncertain environments and with bond yields at record
lows, investors should consider looking at preferreds as an
alternative to their portfolios, in hopes of finding better
yields. Thus, I have found three preferred ETF's that are
currently yielding over 6% that investors may consider adding to
First, is the iShares S&P US Preferred Stock Index Fund
). However, before investors even consider preferreds, remember
that most preferreds outstanding are financials. Thus, there is a
risk in these that, if financial crisis fears erupt once again,
these could sell off. But, as preferreds are senior to common
equity, it will take a significant financial shock to cause this.
PFF has over 84% of its holdings in financial companies
(diversified financials, banks, insurance, and real estate), but
this isn't terrible, so long as investors understand these risks.
The securities are generally highly rated, with 78.5% of the
assets are rated BB or better by S&P. With a current yield of
6.07%, this may be a place to hide out.
For investors who would like a purely financial portfolio of
preferreds, consider the PowerShares Financial Preferred
). With a current yield of 6.95%, it is yielding roughly 4.6x the
10-year treasury bond. With 75% of the assets rated BBB or better
by S&P, this might be a good alternative to investors who do
not mind the excess risk of a pure financial play. What is
interesting is that a portfolio of financials is actually less
risky, as rated by S&P, than a portfolio of mostly
financials, but that's the way the cookie crumbles.
Lastly, the PowerShares Preferred Portfolio (NYSE:
) offers investors a third alternative. Currently yielding 6.59%,
this ETF can also help investors capture yield. With 95% of the
assets rated BB or better by S&P, this ETF provides a third
alternative for investors fishing for income.
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