Below is a link to an interesting read on a study of the performance of high yield preferred stock ETFs. As individuals we can certainly outperform most of these ETFs–we all have opinions of course, but when you see the high yield funds giving a total return of less than 2% per year one must question why folks invest in the high yield funds.
A nice topical piece for investors in ETFs
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Excuse me that article isn’t worth much at all. Where are the 1,3, 5 , 10 year numbers? The comparison of pfd vs IG bond or long bond aggregate? Where is the average ETF vs the Av pfd mutual fund vs SMA pfd managers.? It seems to be a very broad brush with next to zero analysis.
Anyone interested could start here.
https://www.morningstar.com/etfs/xnas/pff/performance.
One could pull the top 5 ETFs, top 5 MF, top 5 CEF, and top SMA’a /compare and contrast. In general they are for gaps in portfolios. Say a 2-8% exposure to pfds may be warranted for some. May not. If one has 10K open for that it is possibly better to have a MF or ETF or CEF get you that sector exposure and be a much better alternative to a single pfd name.
If it wasn’t for the author name and pic I thought it was an AI written filler article. I read it twice thinking I missed something. Nope.
Thanks for posting.
I’ll take a closer look and revert back.
For now, let’s just say that it can pay handsomely to be highly active within high income Preferreds.
High yield vehicles are swing trades when the market is bullish and / or money is loose.
One of the pieces of evidence pointing to new bull market or trap is that high yield hasn’t gone ballistic again. The market is rallying with the most money destruction seen in decades.
Preferred stocks theoretically less volatile than S&P500 stocks, but preferred stocks typically issued by financial companies so their drawdowns during the financial crisis in 2007-2008 were far worse.
IMHO, a bad year like 2022 is a good year to evaluate how well investments work as a “safe harbor.” (I hold mostly individual issues. I have some ETFs which I don’t think of as preferreds as much as income streams generated by a portfolio.)
Preferred stocks, measured by PFF, supposedly the largest preferred ETF, under performed the S&P 500 from January 2022 to May 2023. I looked at both “dividends reinvested ” and “dividends not reinvested.” In both cases, the S&P 500 beat preferreds, although the “with dividends reinvested” comparison was closer. Portfolio Visualizer is a good reality check.
Both investments, SPY and PFF, had negative returns over the period. Cash, which is reviled as “trash” on The Other Website, had a positive return.
When I looked at my portfolio and 2022 asset class performance early in 2023, I was surprised that the “risky” stocks, like energy producers, outperformed the supposedly “safe” stocks, like preferreds.
With recent lackluster performance and the threat of go-dark wipe-outs, preferreds have recently provided me with “reward free risk” instead of the “risk free rewards” they provided during the long stretch from 2009 to 2021.
Still buying individual preferreds — I have not met a high coupon that I didn’t like — but I have been adding more common stocks to the mix when my preferreds roll over in the normal course and putting more pfd divvies into cash at the current higher rates.
Just my opinion. DYODD.
Bear
Your talking about going from
“risk free reward” to “reward free risk”
cracked me up.
Can’t stop laughing/crying over the truth in it.
Gunfighter, I think the past 6 months we have seen a recovery in the prices of financial common and their preferred, but if the market was to drop or even swoon it’s going to affect them.
I have a mix of their BB’s and preferred for income and have been wondering if I had purchased at a low enough cost that even if I was to lose my paper profits I would still not go underwater on my original cost.
I have been harvesting a few and it’s nice to see the portfolio growth but I need the income more. Yes, I could go heavier to CD’s and treasuries then roll out of them when I think I can pickup a good deal. People might call this trying to time the market compared to just staying invested and riding out the highs and lows but I don’t want to go through something like what my parents did in the 70’s when investments were not keeping up with inflation.