The fund was launched March 26, 2007 and has nearly $7 billion in assets. It has a 30-day SEC yield of 6.12%, and a low 0.48% expense ratio. The top ten holdings are all financial firms, with the exception of General Motors.

Rene Casis, a BlackRock director, citing the fund's 250 holdings, says, "For advisors it is going to provide a more diversified exposure to preferred stocks for their clients compared to competitive products, and it has the liquidity to trade intraday compared with a mutual fund that only settles at the end of the day."

One advisor who likes the ETF is Paul White, CFP, president of Independent Financial Planning Inc., an RIA in Gainesville, Va. "I use PFF and also HPS [the John Hancock Preferred Income III Fund], which is a closed-end fund for preferreds. I have more in HPS, as it has a higher distribution rate and about the same volatility as PFF. Although expenses are higher, it can be bought at a discount to NAV, and also uses some leverage."

V. Peter Traphagen Jr., CPA, of Traphagen Investment Advisors LLC in Oradell, N.J., says he includes a small allocation of the iShares S&P U.S. Preferred Stock Index fund for diversification in some clients' portfolios because its yield correlates with those of high-yield bonds. He also cites its low expense ratio, 0.48%.

Invesco has two preferred ETFs. One, the PowerShares Preferred Portfolio (PGX), tracks the BofA Merrill Lynch Core Rated Preferred Securities Index. Launched in January 2008, its assets total $1.4 billion. It has a 30-day yield of 6.96% and an expense ratio of 0.50%.

The other Invesco preferred ETF is the PowerShares Financial Preferred Portfolio (PGF), which was launched in December 2006. With $1.63 billion in assets, it tracks a separate index called the Wells Fargo Hybrid and Preferred Securities Financial Index. PGF sports a 30-day yield of 7.96% and an expense ratio of 0.65%.

Like other preferred ETFs and funds, both of these portfolios have suffered declines lately because of their heavy exposure to financials. The PGX is 83% invested in such names while the PGF is 100% invested.

Preferred Funds
There is plenty of evidence to support active management in preferred funds. Advisors have to keep in mind that their returns are tempered somewhat by greater management fees and expenses.

These funds tend not to be pure plays but hybrids of preferred stocks and other instruments. Like their preferred ETF brethren, their holdings are heavily weighted in the financial sector, which has been under pressure. Hybrid investments include floating and fixed-rate preferreds, cumulative and non-cumulative preferreds, preferred stocks with a callable or conversion feature, and trust preferreds. The asset class includes some closed-end funds, which can be purchased at a discount to their net asset value.

Consider the $455.5 million Cohen & Steers Preferred Securities and Income Fund (CPXIX), an open-end mutual fund launched in June 30, 2010 that has topped its three main ETF competitors lately. Its net expense ratio is 0.75% on Class I shares and 1.10% on Class A shares.