Investing Assets & Markets Stocks Should You Invest in Preferred Stock ETFs? Learn more about preferred stock ETFs and which are the best By Kent Thune Kent Thune Twitter Kent Thune has spent more than two decades in the financial services industry and owns Atlantic Capital Investments, an investment advisory firm, in Hilton Head Island, South Carolina. He's written hundreds of articles for a range of outlets, including The Balance, Kiplinger, Marketwatch, and The Motley Fool. learn about our editorial policies Updated on March 7, 2022 Reviewed by Chip Stapleton Reviewed by Chip Stapleton Chip Stapleton is a Series 7 and Series 66 license holder, passed the CFA Level 1 exam, and is a CFA Level 2 candidate. He, and holds a life, accident, and health insurance license in Indiana. He has eights years' experience in finance, from financial planning and wealth management to corporate finance and FP&A. learn about our financial review board Fact checked by David Rubin Fact checked by David Rubin Facebook Instagram Twitter David J. Rubin is a fact checker for The Balance with more than 30 years in editing and publishing. The majority of his experience lies within the legal and financial spaces. At legal publisher Matthew Bender & Co./LexisNexis, he was a manager of R&D, programmer analyst, and senior copy editor. learn about our editorial policies Share Tweet Pin Email In This Article View All In This Article What Are Preferred Stock ETFs? The Pros and Cons of Buying Preferred Stock ETFs How to Assess and Buy Preferred Stock ETFs The Bottom Line Photo: Giordano Trabucchi / EyeEm / Getty Images Preferred stock ETFs can be a smart addition to a portfolio, especially for investors wanting an income from dividends. Learn the pros and cons of these funds that invest in preferred stocks and find out which ones are the best to buy now. Key Takeaways Preferred stock ETFs combine the traits of stock and bonds for a unique type of investment.The high dividends and lower market risk of preferred stock ETFs may appeal to risk-averse investors, more so than stocks.Preferred stock ETFs do not often produce major growth or high long-term returns.When shopping for preferred stock ETFs, costs and returns will be important factors. What Are Preferred Stock ETFs? Preferred stock ETFs are exchange-traded funds that enable investors to buy a portfolio of preferred stocks. But what exactly are preferred stocks? Preferred stock is like a hybrid of common stock and bonds. The reason for this hybrid status is that preferred stocks are securities that deal in equity, like common stocks, but they have income traits like those of bonds. Like bonds, preferred stocks are assigned a par value and they pay a stated rate of interest. The price of the preferred stock tends to change with the rise and fall of interest rates. As with bonds, the price of a preferred stock moves in the opposite direction of interest rates. Preferred stocks are also unique in that they receive priority status if there were a bankruptcy and liquidation proceeding with the corporate issuer. For example, if a company needed to liquidate all their assets per court order, preferred stockholders would receive money (if any remains) before the common stockholders (but after the creditors and bondholders). This explains the "preferred" label. The Pros and Cons of Buying Preferred Stock ETFs Before buying preferred stock ETFs, you should learn the pros and cons of these unique securities. What We Like Higher dividends Preference in bankruptcy Less market risk than common stock What We Don't Like Interest rate risk No voting rights Minimal growth Here are the pros of buying preferred stock ETFs: Higher dividends: Compared to common stock, preferred stock will usually pay greater dividends. Preference in bankruptcy: Preferred stocks are ahead of common stocks (but behind bonds) in order of liquidation if there is a bankruptcy proceeding. Less market risk than common stock: Dividend payments are fixed, and price changes are not as pronounced, when compared to common stock. Both of these features make preferred stocks less risky. Here are the cons of investing in preferred stock ETFs: Interest rate risk: Since preferred stock is interest-rate sensitive like bonds, they are not the best types of investments to hold when interest rates are rising. This is because the price falls when interest rates are going up. However, common stock can gain price in a rising interest rate market. No voting rights: Unlike common stock, shareholders do not receive voting rights with preferred stock. Minimal growth: The tradeoff for low market risk and fixed dividend rates is that preferred stock produces little to no price gains for investors. How to Assess and Buy Preferred Stock ETFs If you're looking to invest in preferred stock ETFs, there are a couple of features to focus on. The best preferred stock ETFs will be true to their stated objective, meaning that the majority of holdings will consist of preferred stocks (or they will closely track an index of preferred stocks). Since most preferred stock ETFs track the same or similar benchmark indexes, low costs become one of the main features to look for when trying to get the best deal for your money. Note You should also look for high assets under management and a long track record of performance. If you're looking for yield, a high current yield, such as the SEC 30-day yield, is a must. With those criteria in mind, here are a few preferred stock ETF options in 2022: SPDR ICE Preferred Securities ETF (PSK): Considering all of the qualities that make the best-preferred stock ETFs, PSK may be the best overall. With a solid current yield of 5.15% and a low expense ratio of 0.45% as of March 2022, PSK offers a good combination of income and low cost that preferred stock investors seek. PSK tracks the Wells Fargo Hybrid and Preferred Securities Aggregate Index. Invesco Preferred ETF (PGX): With net assets over $7 billion, PGX is one of the largest preferred stock ETFs on the market. Higher assets can translate to more stable prices through greater liquidity. The current yield for PGX was 5.20% as of March 2022, and expenses are 0.51%. PGX tracks the ICE BofAML Core Plus Fixed Rate Preferred Securities Index. Global X SuperIncome Preferred ETF (SPFF): If you’re looking for high yield, SPFF may be the fund for you. Its current yield of 5.69% is higher than most preferred stock ETFs, and the expense ratio of 0.58% is attractive. However, assets are on the low side at under $215 million, as of March 2022. The Bottom Line Preferred stock ETFs can be a wise choice for investors who are looking for a way to diversify a portfolio designed for income. The combination of high dividends and lower market risk, compared to common stock, can be attractive for conservative investors. However, long-term investors looking for growth may want to look elsewhere for the best ETFs for their portfolios. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. S&P Dow Jones Indices. "Digging Deeper Into the U.S. Preferred Market," Pages 1, 5. Fidelity. "Preferred Stock." Nasdaq. "Preferred Stock." S&P Dow Jones Indices. "Digging Deeper Into the U.S. Preferred Market," Pages 1, 5, 7-8, 14. State Street Global Advisors. "SPDR ICE Preferred Securities ETF." Yahoo Finance. "Invesco Preferred ETF (PGX)." Invesco. "Invesco Preferred ETF." Global X. "SuperIncome Preferred ETF."