5 Preferred Stock ETFs Yielding 4% Or More

Though yields on the benchmark 10-year U.S. Treasury note recently popped on a host of upbeat U.S. economic readings and the Fed rate hike speculation, yields are still at subdued levels.

As of October 6, 2016, yield on the U.S. Treasury note was 1.75%. Also, though the major indices recovered lately, these are not out of the woods. Global growth issues and any weakness in the upcoming corporate earnings may still derail market momentum and keep long-term interest rates low. 

Investors should note that even if rates rise in the future on the Fed policy tightening, many may still be looking for benchmark-beating yields. Though there are quite a few options, the current combination of relatively lower rates and higher equity risks makes investing in preferred stocks one of the most favored practices.

Preferred Stock ETFs in Focus 
 
Not only do the preferred stocks offer considerably higher yields (often exceeding 5%), they also provide an opportunity for capital appreciation. They are hybrid securities having the characteristics of both debt and equity. The preferred stockspay stockholders a fixed, agreed-upon dividend at regular intervals, like bonds.
 
Preferred stocks are thus quite stable and generally have a low correlation with other income generating segments of the market like REITs, MLPs, corporate bonds and TIPs.
 
Though investors can buy individual companies’ preferred stocks, buying preferred stock ETFs can be a very convenient way of investing in a basket of diversified companies at a low cost. Below we have highlighted five ETFs, which not only offer substantial yields but also provide a great opportunity for capital appreciation.

PowerShares Preferred ETF (PGX - ETF report) ) – 5.68% Yield
 
The $4.76-billion fund holds a portfolio of 252 preferred stocks in its basket, tracking the BofA Merrill Lynch Core Fixed Rate Preferred Securities Index. It charges 50 bps in fees. Financials (74.8%) dominates this fund followed by utilities (8.4%).

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