Fueled in part by expectations that the Federal Reserve will lower interest rates this year — or at the very least, won’t hike anymore — preferred stocks and related ETFs are delivering solid showings for income investors.
For its part, the VanEck Preferred Securities ex Financials ETF (PFXF) is higher by nearly 4% year to date. That adds to performance that’s seen preferreds rank as among the best-performing fixed income assets dating back to Q4 2023.
For PFXF, that bullishness comes with the benefit of a 7.01% 30-day SEC yield. It also has no exposure to preferreds issued by financial services companies. The latter is a point to consider at a time when auto loan and credit delinquencies are at multiyear highs.
More Perks of the Preferred Securities ETF PFXF
Preferreds are considered hybrid securities. That means they possess both equity and fixed income traits. But they’re more frequently lumped in with bonds. That implies PFXF’s currently high yield could be enticing. That’s because the higher a bond’s yield is when an investor gets involved, the shorter the odds are of long-term upside.
“Yields have risen sharply over the past few years and the ICE BofA Fixed Rate Preferred Securities Index now offers an average yield-to-worst of more than 5.5%. That’s off its recent high of 7.8% from last fall. But it’s at the high end of the 10-year pre-pandemic range,” noted Collin Martin of Charles Schwab.
