PFF ETF

The fixed-income market is currently very expensive and it is time to be defensive. iShares Preferred ETF is a very poor ETF that offers a great place to get insurance against a sell off in fixed-income. I will explain why. Additionally, I point out several overvalued preferred stocks (some owned by PFF and some not).

Rising oil prices and strong payroll data preclude further rate cuts, negatively impacting effectively long-duration securities like PFF. PFF's high expense ratio (0.46%) makes it less attractive compared to similar, cheaper ETFs in the preferred space. Middle Eastern conflict escalation could further increase oil prices, adding downside risk to long-duration assets like PFF, as rate policy and oil prices which affect inflation are linked.

Preferred shares provide attractive returns with characteristics that fall between bonds and equity in terms of risk. The iShares Preferred and Income Securities ETF, the largest ETF in this category, has not performed as well as similar funds and high-yield bonds. The current portfolio offers a yield to worst of 6.8% with a duration of 9 years, and is trading at an 8% discount to its par value.

The iShares Preferred and Income Securities ETF is a significant ETF focused on preferred shares, holding a variety of assets in financials, industrials, and utilities. While PFF did not perform as well as the S&P 500 during the pandemic, it currently offers an attractive opportunity with a yield of 6.3%. With a history of providing reliable monthly dividends, PFF is a strong choice for investors looking for consistent returns.

PFFA: 10% Yield Is Attractive, But There Are No Free Lunches

The iShares Preferred and Income Securities ETF is a fixed income ETF focused on financials preferred equity. Financials common equity and preferred shares have rallied significantly in the past months, on the back of an easing in macro financial conditions. PFF has a 6.4% yield on a 12-month trailing basis, and 6.6% on a 30-day SEC yield basis, which are beginning to look stretched from a risk/reward perspective.

iShares Preferred and Income Securities ETF (PFF) has returned a negative 6.65% despite adding back taxable dividends since the last article. The biggest drawback for blindly picking up the entire preferred share asset class today is the low credit spreads. We go over that and three other reasons you should consider exiting this fund.

Preferred equities have performed poorly due to rising long-term interest rates, consistently paying around 1-2% more than long-term Treasuries. The yield of preferred equities, such as those in the PFF ETF, is not attractive compared to risk-free options like Treasury bills, which pay over 5% risk-free. There is a significant credit risk in the banking system, with many banks holding preferred equities at risk of being downgraded, leading to significant potential losses in PFF.

iShares Preferred and Income Securities ETF is the dominant preferred ETF with over $12.76 billion in assets under management. The Invesco Variable Rate Preferred ETF could be getting more attention due to its floating rate exposure that shows less sensitivity to rising interest rates. Both had seen their yields start to rise, but some of those gains for PFF have been reversing more recently, while VRP's payout has continued to rise.