• Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer

Optimized Portfolio

Investing and Personal Finance

  • Beginners Start Here
  • Investing 101
    • Beginners Start Here – 10 Steps To Start Building Wealth
    • What Is the Stock Market? How It Works & How to Invest in It
    • How To Invest in an Index Fund – The Best Index Funds
    • Portfolio Asset Allocation by Age
    • How To Invest Your Emergency Fund
    • Portfolio Diversification – How To Diversify Your Portfolio
    • Dollar Cost Averaging vs. Lump Sum Investing (DCA vs. LSI)
    • How To Invest Your HSA (Health Savings Account)
    • Factor Investing and Factor ETFs – The Ultimate Guide
    • more…
  • Lazy Portfolios
    • All Weather Portfolio
    • Bogleheads 3 Fund Portfolio
    • HEDGEFUNDIE’s Excellent Adventure
    • Warren Buffett Portfolio
    • Golden Butterfly Portfolio
    • Paul Merriman Ultimate Buy and Hold Portfolio
    • Ben Felix Model Portfolio
    • Permanent Portfolio
    • David Swensen Portfolio
    • 60/40 Portfolio
    • more…
  • Funds
    • VOO vs. VTI – Vanguard S&P 500 or Total Stock Market ETF?
    • The 7 Best International ETFs
    • The 8 Best Small Cap ETFs (4 From Vanguard)
    • The 5 Best REIT ETFs
    • The 5 Best EV ETFs – Electric Vehicles ETFs
    • VIG vs. VYM – Comparing Vanguard’s 2 Popular Dividend ETF’s
    • The Best Vanguard Dividend Funds – 4 Popular ETFs
    • The 5 Best Tech ETFs
    • The 7 Best Small Cap Value ETFs
    • The 6 Best ETFs for Taxable Accounts
    • The 5 Best Emerging Markets ETFs (1 From Vanguard) for 2023
    • more…
  • Leverage
    • What Is a Leveraged ETF and How Do They Work?
    • How To Beat the Market Using Leverage and Index Investing
    • The 9 Best Leveraged ETFs
    • Hedgefundie’s Excellent Adventure
    • Leveraged All Weather Portfolio
    • Leveraged Permanent Portfolio
    • Leveraged Golden Butterfly Portfolio
    • NTSX – Review and Summary
    • TQQQ – Is It A Good Investment?
    • PSLDX – A Review
    • SWAN – A Review
    • RPAR Risk Parity ETF Review
    • more…
  • Dividends
    • The Best M1 Finance Dividend Pie
    • The 11 Best Dividend ETFs
    • The Best Vanguard Dividend Funds – 4 Popular ETFs
    • VIG vs. VYM – Comparing Vanguard’s 2 Popular Dividend ETF’s
    • 8 Reasons Why I’m Not a Dividend Income Investor
    • QYLD – A Harsh Review
    • more…
  • Broker Reviews
    • The 5 Best Stock Brokers
    • The 4 Best Investing Apps
    • M1 Finance Review
    • Brokers with the Lowest Margin Rates
    • M1 Finance vs. Fidelity
    • M1 Finance vs. Vanguard
    • Webull vs. Robinhood
    • Stash vs. Robinhood
    • M1 Borrow Review (How M1’s Margin Loan Works)
    • more…
  • Retirement
    • The 10 Best ETFs for Retirement Portfolios in 2023
    • The 4% Rule for Retirement Withdrawal Rate – A Revisitation
    • Sequence of Return Risk in Retirement Explained
    • Traditional IRA Explained
    • Roth IRA Explained
    • 401k vs. Roth IRA
    • Roth IRA vs. Traditional IRA
    • Backdoor Roth IRA Explained
    • more…

3 Best Preferred Stock ETFs & Why You Should Avoid Them (2023)

Last Updated: August 9, 2022 2 Comments – 3 min. read

Preferred stock shares typically trade some capital appreciation for higher dividend yields. Here we’ll look at the best preferred stock ETFs and why you might (not) want to use them.

Disclosure:  Some of the links on this page are referral links. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. This allows me to continue producing high-quality, ad-free content on this site and pays for the occasional cup of coffee. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful, not because of the commission I get if you decide to purchase through my links. Read more here.

Contents

  • Video
  • Introduction – Why Preferred Stock?
  • The 3 Best Preferred Stock ETFs
    • PFF – iShares Preferred and Income Securities ETF
    • PGX – Invesco Preferred ETF
    • PSK – SPDR Wells Fargo Preferred Stock ETF
  • But Should You Buy Preferred Stocks? Probably Not.
  • Where To Buy These Preferred Stock ETFs

Video

Prefer video? Watch it here:

Introduction – Why Preferred Stock?

Preferred stock shares – as opposed to common stock – have preferential claim to dividend distributions. Dividends are typically higher for preferred shares than for common shares, so preferred stock is common among dividend investors.

Preferred stock also has more stability than common stock. It exhibits aspects of common stock and bonds, and can be seen as somewhat of an in-between asset. Preferred shareholders trade voting rights for higher yields. Preferred stock holders also take priority in cases of financial troubles or liquidations. Preferred stock is ideal for risk-averse investors seeking fixed, predictable dividend payments.

Below we’ll look at the best preferred stock ETFs.

The 3 Best Preferred Stock ETFs

Below are the 3 best preferred stock ETFs.

PFF – iShares Preferred and Income Securities ETF

The iShares Preferred and Income Securities ETF (PFF) seeks to track the S&P U.S. Preferred Stock Index, providing broad, diversified exposure to preferred stock traded on the NYSE and NASDAQ. The fund has over $16 billion and an expense ratio of 0.46%. Note that this ETF inherently overweights the Financials sector due to its holdings.

PGX – Invesco Preferred ETF

Unlike PFF above, the Invesco Preferred ETF (PGX) screens for credit rating. Its holdings can thus be considered higher quality. This usually means lower volatility; PGX has historically had the lowest volatility of the 3 funds on this list. The fund seeks to track the ICE BofAML Core Plus Fixed Rate Preferred Securities Index and has an expense ratio of 0.51%.

PSK – SPDR Wells Fargo Preferred Stock ETF

The SPDR Wells Fargo Preferred Stock ETF (PSK) achieves arguably better diversification than the above funds because it limits any individual holding to a 5% weight, meaning it is not financials-heavy. PSK has had the smallest historical drawdown of the funds on this list. This ETF is comparatively less liquid but is also slightly cheaper than the above funds with an expense ratio of 0.45%.

If I were choosing one of these, I would probably go with PGX from Invesco. You can see it in red in the backtest below. The slightly higher expense ratio seems like a worthy trade-off for its credit rating screen, and historically it has delivered the highest return with the lowest volatility, meaning it has the highest risk-adjusted return of these funds:

preferred stock etfs performance
Source: PortfolioVisualizer.com

But Should You Buy Preferred Stocks? Probably Not.

Preferred stocks sound fancy and attractive, but don’t get sucked in too quickly.

First, preferred shares are still an equity investment. In the event of bankruptcy, a firm’s debt holders are still getting paid before preferred shareholders. If a company is liquidated, the preferred shareholder is getting zilch.

Recall that preferred stocks have aspects of bonds. Traditional bonds have a fixed maturity date. Preferred stocks don’t. Preferred shares are like corporate bonds with a perpetual maturity. Talk about credit risk…

Preferred stocks are also typically callable. I delved into why this stinks when talking about convertible bonds. Basically, if interest rates fall, the investor’s upside potential is capped because the issuer would just call the preferred stock. This creates an asymmetric risk/return profile for preferred stocks. That is, the callability basically cancels out any upside from long maturities.

Furthermore, companies usually issue preferred stock as a way to avoid a credit downgrading from taking on more debt or because they are simply unable to issue more debt. This alone should be a red flag.

Lastly, while that fixed dividend sounds nice, and while preferred shareholders do have preferential claim to dividends, those dividends can still be deferred in periods of market turmoil, whereas conventional bond interest would be more reliable. Missed dividends due to suspension do not have to be made up later.

The higher yield of preferred stocks does not adequately compensate the investor for these greater risks and inefficiencies. This doesn’t even consider the fact that any investment vehicle for preferred stocks, like the funds listed above, are pretty expensive. As usual, retail investors are probably wise to stick with traditional stocks and bonds.

Where To Buy These Preferred Stock ETFs

If you want one, all the above preferred stock ETFs should be available at any major broker. My choice is M1 Finance. M1 has zero trade commissions and zero account fees, and offers fractional shares, dynamic rebalancing, intuitive pie visualization, and a sleek, user-friendly interface and mobile app. I wrote a comprehensive review of M1 Finance here.


Interested in more Lazy Portfolios? See the full list here.

Disclaimer:  While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.

m1 finance get started

Don't want to do all this investing stuff yourself or feel overwhelmed? Check out my flat-fee-only fiduciary friends over at Advisor.com.

77 percent of millenials report their finances are a source of anxiety

Related Posts

  • 5 Nuveen Funds for Targeted ESG Exposure in 2023
  • Factor Investing and Factor ETFs – The Ultimate Guide
  • M1 Finance vs. Wealthsimple Brokerage Comparison (2023)
  • The Best Vanguard Bond Funds – 11 Popular ETFs for 2023
  • RSP ETF Review – Is RSP a Good Investment? (Equal Weight)

About John Williamson

Analytical and entrepreneurial-minded data nerd, usability enthusiast, Boglehead, and Oxford comma advocate. I lead the Paid Search marketing efforts at Gild Group. I'm not a big fan of social media, but you can find me on LinkedIn and Reddit.

Reader Interactions

Comments

  1. greg says

    June 21, 2022 at 12:51 pm

    John,
    Looking at portfolio visualizer’s correlation of the VOO and PGX, it seems outside of inflationary periods, they have a low correlation. Given that low correlation with a still positive expected return, do you think it’s helpful in achieving a mild leveraged risk parity style portfolio?

    Reply
    • John Williamson says

      June 21, 2022 at 1:53 pm

      No. As noted, preferred stocks have elements of stocks and bonds, so the correlation there is what we’d expect.

      Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Sign up to receive email updates when a new post is published.

Don't worry, I hate spam too. No ads.

  • Facebook
  • Instagram
  • Reddit
  • Twitter
  • YouTube
  • Patreon

Most Popular

Ray Dalio All Weather Portfolio Review, ETFs, & Leverage (2023)

HEDGEFUNDIE’s Excellent Adventure (UPRO/TMF) – A Summary

Golden Butterfly Portfolio Review and M1 Finance ETF Pie

David Swensen Portfolio (Yale Model) Review and ETFs To Use

Harry Browne Permanent Portfolio Review, ETFs, & Leverage (2023)

Corporate Bonds vs. Government Bonds (Treasuries) – The Showdown

VIG vs. VYM – Vanguard’s 2 Popular Dividend ETFs (Review)

Warren Buffett ETF Portfolio (90/10) Review and ETFs (2023)

The 60/40 Portfolio Review and ETF Pie for M1 Finance

Bogleheads 3 Fund Portfolio Review and Vanguard ETFs (2023)

m1 sidebar

visor sidebar

Paul Merriman Ultimate Buy and Hold Portfolio Review, M1 Pie (2023)

Lowest Margin Rates Brokers (2023 Comparison)

M1 Finance vs. Vanguard Brokerage Comparison [2023 Review]

M1 Finance vs. Fidelity Brokerage Comparison [2023 Review]

The Best M1 Finance Dividend Pie for FIRE & Income Investors

Portfolio Asset Allocation by Age – Beginners To Retirees

The 5 Best Stock Brokers Online for Investing (2023 Review)

The 4 Best Investing Apps for Beginners (2023 Review)

The 7 Best Small Cap ETFs (3 From Vanguard) for 2023

The 6 Best REIT ETFs To Invest in Real Estate for 2023

The 6 Best Tech ETFs To Buy Tech Stocks in 2023

9 Best Clean Energy ETFs To Go Green in Your Portfolio (2023)

The 13 Best Small Cap Value ETFs (3 From Vanguard) for 2023

Why, How, & Where To Invest Your Emergency Fund To Beat Inflation

VOO vs. VTI – Vanguard’s S&P 500 and Total Stock Market ETFs

9 Best International ETFs To Buy (6 From Vanguard) in 2023

Ben Felix Model Portfolio (Rational Reminder, PWL) ETFs & Review

Factor Investing and Factor ETFs – The Ultimate Guide

Gone Fishin’ Portfolio Review (Alexander Green) & ETFs (2023)

TQQQ – Is It A Good Investment for a Long Term Hold Strategy?

Recent Posts

Roth IRA vs. Traditional IRA – Which Is Better for You? (2023)

VXUS vs. IXUS – Vanguard or iShares International ETF?

Tail Risk – What It Is and How To Hedge Against It

I Bonds Explained (US Savings Bonds) – Ultimate Guide (2023)

JEPI ETF Review – JPMorgan Equity Premium Income ETF

Sharpe Ratio vs. Sortino vs. Calmar – Risk Adjusted Return

Investing Risk Explained (My Take on Portfolio Risk & Volatility)

HNDL ETF Review – Is HNDL a Good Investment? (7HANDL™ ETF)

NUSI ETF Review – Is NUSI a Good Investment?

3 Best SPAC ETFs To Invest in SPACs in 2023 – But Should You?

VOO vs. VOOV vs. VOOG – Vanguard S&P 500, Value, or Growth?

VXUS vs. VEU – Which Vanguard Total International ETF?

VT vs. VTI – Global Stock Market vs. Total U.S. Stock Market

RPAR Risk Parity ETF Review – An All Weather Portfolio ETF?

PSLDX – A Review of the PIMCO StocksPLUS® Long Duration Fund

View All...

Footer

  • Facebook
  • Instagram
  • Reddit
  • Twitter
  • YouTube
  • Patreon

Amazon Affiliate Disclosure

OptimizedPortfolio.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.

Email Newsletter

Sign up to receive email updates when a new post is published.

Don't worry, I hate spam too. No ads.

About - My Toolbox - Privacy - Terms - Contact


Copyright © 2023 OptimizedPortfolio.com

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Ok, Got ItReject Read More
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Non-necessary
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
SAVE & ACCEPT