VOO - PFFD: A 'Preferred' High Yield ETF Value Trap
2024-03-12 21:10:33 ET
Summary
- The PFFD ETF seeks to provide investors with "high yield" income by investing in a broad basket of preferred stock issues.
- The majority of preferred stock held in the PFFD ETF are issued by financial institutions and utility companies.
- Income-oriented investors are attracted by the "shiny object" of a 6.4% yield and the fact that preferred shares are higher on the distribution/assets claims ladder as compared to common stock.
- But don't fall for it: the long-term total returns of the PFFD ETF are absolutely abysmal, and the opportunity costs of holding the fund versus the S&P 500 or top dividend paying energy companies are massive.