by Stoyan Bojinov
Investors everywhere have been hunting for yield amid this historically low-rate environment. With central banks on all fronts committed to offering seemingly never-ending stimulus programs, many have been scouring the markets for income-producing securities in lieu of chasing after risky capital gains in a world of economic uncertainties. Luckily, the ETF universe is vast, and when it comes to current income, investors have several dozen options.
Investors can look to several different corners of the exchange-traded market for juicy yields, including dividend and high-yield ETFs. One particular asset class that is often overlooked is the preferred segment of the equity market.
While preferred shares don't necessarily feature the same upside potential as their common stock counterparts, this breed of securities has demonstrated the potential to enhance risk-adjusted returns and deliver bond-like volatility while also offering a stream of generally stable income. As such, we highlight three offerings from the Preferred Stock/Convertible Bonds ETFdb Category that warrant a closer look:
1. Van Eck Market Vectors Preferred Securities ex Financials ETF (PFXF)
When it comes to juicy dividends, the financials sector is often the first place to look. However, countless investors were burned by this sector during the most recent economic downturn. Investors looking to beef up their current income without concentrating their exposure on financials sector can do so through PFXF.
The fund's underlying portfolio consists of 68 holdings spread across convertible (or exchangeable) and non-convertible preferred securities listed on U.S. exchanges. The fund's distinguishing factor is that it entirely excludes exposure to companies in the financial sector.
This strategy may appeal to anyone looking to enhance their current income through preferred stock exposure, but is wary of the lucrative distributions offered by companies operating in the financial sector. PFXF features a hefty 6.27% 30-Day SEC yield that is sure to appease income-hungry investors who also value lower expected volatility.
2. Global X SuperIncome Preferred ETF (SPFF)
This Global X ETF tracks the S&P Enhanced Yield North American Preferred Stock Index, which consists of 47 securities from the U.S. and Canada. The underlying holdings must meet certain criteria for inclusion relating to their size, liquidity, issuer concentration and credit rating.
Unlike PFXF, this ETF features a heavy allocation to the financials sector--SPFF holds nearly three-quarters of total assets in financial preferred securities, with insurance and real estate holdings making up the next two largest allocations. Top individual holdings include preferred securities from Credit Suisse, American International Group and Aegon. Similar to PXFX, this fund will make monthly distributions and its recent 30-Day SEC yield stood at 6.51%.
3. Global X Canada Preferred ETF (CNPF)
Investors looking to tap into a high-yield, low volatility segment in the equity market outside of the U.S. should take a closer look at Global X's Canada Preferred ETF. This one-of-a-kind ETF provides exposure to preferred shares of Canadian companies and makes it easy for investors to diversify their portfolios geographically while still maintaining a similar risk-return profile as domestic-based securities.
CNPF's underlying portfolio consists of roughly 50 preferred stocks from Canadian issues that trade on the Toronto Stock Exchange. From an industry breakdown perspective, nearly three-quarters of total assets go to financials. Energy and telecommunication services account for the next biggest chunks. This ETF makes monthly distributions like the others on the list, and its recent 30-Day SEC yield stood at 3.65%.
Stoyan Bojinov is a writer at ETFdb. ETFdb offers a comprehensive and original ETF database and analytical consulting services for advisors and investors, as well as a free newsletter. Learn more about their services by visiting ETFdb.com. Disclosure: No positions at time of writing.