Exchange Traded Funds (ETFs)

This Fund Combines Traits of Common Stock and Bonds

(Note: This is the second in a series of preferred ETFs designed for income-oriented investors who are looking for added yield and share price performance).

Preferred stock is a type of asset that stands to some degree in between common stock and bonds, with some characteristics of each.

Like common stock, preferred shares allow holders to participate in gains in the company’s stock price. However, preferred shares also involve greater guarantees on distributions, have a heightened guarantee to receive a more fixed dividend income and typically do not come with full corporate voting rights.

One way to invest in this type of asset is through an exchange-traded fund (ETF) such as the Invesco Financial Preferred ETF (PGF). The ETF is based on the Wells Fargo Hybrid and Preferred Securities Financial Index (WHPSF Index). The fund generally will invest at least 90% of its total assets in preferred securities of financial institutions that comprise the Index.

PGF’s holdings, weighted based on market cap, are invested fully in a wide range of preferred securities. Not surprisingly, given its name, it is focused on the financial sector. Its holdings are generally not top-rated in terms of quality (i.e. safety) and may pay greater yields as a result.

The fund is performing adequately this year, while somewhat insulated, as you might expect from a safer investment vehicle, from wild swings in the market. Its 12-month performance is close to unchanged, and it has paid out more than 5% in dividends over that time. PGF holds $1.46 billion in net assets, while its expense ratio is 0.62%.

Chart courtesy of www.StockCharts.com

This fund tends to own a number of different coupon varieties for particular companies. The top companies in its portfolio include JPMorgan (NYSE:JPM), PNC Financial Services Group (NYSE:PNC), Wells Fargo & Co. (NYSE:WFC), Bank of America Corp. (NYSE:BAC) and Citigroup Inc. (NYSE:C).

If preferred stock is an investment vehicle that may fit in your portfolio, Invesco Financial Preferred ETF (PGF) offers a way to invest in that segment of that market.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.