Investing in the stock market can be a daunting task, especially for those new to the game. One investment vehicle that has gained popularity in recent years is the iShares US Preferred Stock ETF. This article provides a comprehensive fact sheet, covering everything you need to know about this ETF, including its performance, fees, and potential risks.
What is the iShares US Preferred Stock ETF?
The iShares US Preferred Stock ETF (ticker: PFF) is an exchange-traded fund that tracks the performance of a basket of preferred stocks listed on U.S. exchanges. Preferred stocks are a type of equity security that gives investors a higher claim on a company's assets and earnings than common stocks, but a lower claim than bondholders.
Performance
Since its inception in 2006, the iShares US Preferred Stock ETF has delivered strong returns. As of the latest data, the ETF has a 5-year annualized return of 5.6%, and a 10-year annualized return of 6.2%. This outperforms the S&P 500 over the same periods, which has a 5-year annualized return of 4.8% and a 10-year annualized return of 6.2%.
Fees
One of the advantages of the iShares US Preferred Stock ETF is its low expense ratio. The ETF has an expense ratio of just 0.47%, which is significantly lower than the average expense ratio of 0.67% for all U.S. equity ETFs. This means that a larger portion of your investment is being allocated to the underlying preferred stocks, rather than being eaten up by fees.
Dividends
The iShares US Preferred Stock ETF offers investors a high yield, with a current dividend yield of 4.8%. This is significantly higher than the yield on the S&P 500, which is currently around 1.9%. The ETF's high dividend yield is due to the nature of preferred stocks, which often pay higher dividends than common stocks.
Risks
While the iShares US Preferred Stock ETF offers attractive returns and dividends, it's important to be aware of the risks involved. The main risk is that preferred stocks are riskier than bonds but less risky than common stocks. If a company goes bankrupt, preferred stockholders have a higher claim on assets than common stockholders but a lower claim than bondholders.
Case Study: Bank of America Preferred Stock
One of the companies included in the iShares US Preferred Stock ETF is Bank of America. The ETF holds Bank of America's Series A Preferred Stock, which has a dividend yield of 6.3%. This preferred stock has performed well over the past few years, delivering a total return of 18.2% since the ETF's inception.
Conclusion
The iShares US Preferred Stock ETF is a compelling investment option for investors seeking high yields and exposure to the U.S. stock market. With its strong performance, low fees, and high dividend yield, the ETF is a valuable addition to any investment portfolio. However, it's important to understand the risks involved before investing.
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