This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

New Preferred-Stock ETF Seeks to Avoid Financials

Prescott, Ariz. ( TheStreet) -- Van Eck recently launched what could be a very useful fixed-income product with the Market Vectors Preferred Securities Ex-Financials ETF (PFXF).

iShares recently launched a couple of bond ETFs that also exclude financial stocks, and there will probably be other fixed-income products in the future that avoid financials.

The big idea is that anyone concerned that the financial crisis is not over and wants to avoid banks can do so with funds like PFXF. Financial companies issue the most debt by far, including preferred stocks, and it can be very difficult for investors looking to avoid that sector for their fixed-income portfolios to do so and still be able to use ETFs.

As someone who does not like financial stocks but who uses preferred stocks for clients, this fund immediately caught my eye. The fund has 67 holdings, a good number for reasonable diversification, but there are some quirks in the composition of the fund that may detract from what is a great idea.

The average current yield of the holdings is 6.78%, which, after accounting for the 0.40% expense ratio, leaves yield to fund holders at possibly 6.38%. But as is always the case with ETFs, the actual yield of the fund remains to be seen and can fluctuate from what investors expect.

The Van Eck website reports a 10% weighting to General Motors' (GM) preferred B shares, which is far higher than the 3.76% to an issue from PPL Corporation (PPL), which is the second-largest holding.

Other than the GM issue the larger weightings in the fund are in the 3% range, with smaller holdings closer to 1% -- which makes the 10% in GM all the more puzzling. The screening methodology combines market-cap weighting of the issues and liquidity and this process allows for GM preferred B to have a 10% weighting.

Also surprising is a very narrow definition of financial stocks that appears to be limited to banks. PFXF includes reinsurance companies and various types of REITs, including a couple of positions in mortgage REIT preferred stocks. Preferreds from these companies appear to account for 36% of the fund; 6% reinsurance, 30% REITS.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
PFXF $20.72 0.00%
AAPL $127.60 0.00%
FB $83.09 0.00%
GOOG $535.38 0.00%
TSLA $205.27 0.00%

Markets

DOW 18,034.93 +208.63 1.17%
S&P 500 2,100.40 +19.22 0.92%
NASDAQ 4,994.6020 +62.7870 1.27%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs