Do These ETFs Offer The Safest Strong Yields?

Hatfield’s firm, in tandem with Virtus Investment Partners, also launched the Virtus InfraCap U.S. Preferred Stock ETF (PFFA) last month. The fund seeks to boost its yield by writing covered call options. Since the fund is new, it’s too soon to calculate the distribution yield. But a stated goal is to have a yield of approximately 2 percent above the iShares U.S. Preferred Stock ETF noted earlier.

That potential higher yield doesn’t come cheap, though, considering the fund’s 1.36 percent expense ratio. That’s well above the 0.45 percent expense ratio charged by the InfraCap REIT Preferred ETF, and the discrepancy can be explained by the newer fund’s use of active management and the cost to implement the options contracts. (The InfraCap REIT fund is passive and rebalances twice per year).

Preferred stocks also possess one final virtue: tax-savings. For example, 84 percent of the income produced by stocks in the iShares fund is in the form of qualified dividends that are shielded from taxation. That makes preferreds suitable for taxable accounts. Bond funds, which have a much higher portion of taxable income, may be suited for retirement accounts.