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Dipping Into Financials With ETFs

PowerShares Financial Preferred

Type: Financial preferred ETF. Others in this category: iShares U.S. Preferred Stock (PFF).

What it does: PGF tracks the Wachovia Hybrid & Preferred Securities Financial Index. The underlying basket currently includes 40 holdings comprised of U.S. listed preferred stocks.

Who it's for: Investors looking for a high-yield option in the financial sector. Preferred shares have both debt and equity aspects, and PGF is likely to be more volatile than other regular equity financial ETFs. Preferred stock securities, like those found in PGF's portfolio, are taxed with the same 15% rate as common dividends. This 15% rate compares favorably to the rate that investors would pay on fixed income or bond interest payments, which are taxed as ordinary income at the maximum tax rate.

Top 10 holdings: (coupon rate, rating). Bank of America (BA, 8.20%, BB-/B3), Barclays (BCS) (8.13%, BBB+/Baa2), JPMorgan Chase (8.63%, BBB+/A2), Wells Fargo (8%, NR/B2), Allianz (ALL.PA) (8.38%, A+/A3), HSBC Holdings (HBS) (8.13%, A-/A1e), Metlife (6.50%, BBB-/Baa1), ING (ING) (8.50%, BBB/A3), Bank of America (8.625% PD 8.63%, BB-/B3), Credit Suisse (CS) (7.90%, NR/Aa3).

Liquidity and fees: The portfolio is rebalanced monthly and has a 0.60% fee. The three-month average daily trading volume: 1,529,480.
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IAT $33.53 -1.87%
KBE $31.92 -2.27%
PGF $18.87 -0.11%
VFH $47.58 -1.25%
XLF $23.22 -1.28%


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