The index that underlies the fund is constructed and managed by Wells Fargo (WFC), which believes the businesses of REITs and reinsurers is not the same as other financials, which allows for them to be in the index and so in the fund.
To be clear, there are no bank preferred stocks in the fund. Anyone interested in this fund needs to decide whether their own definition of financial companies includes insurance companies and REITs.
One of the holdings in the fund is Vornado Realty Trust 's (VNO) Preferred Series I. VNO-I began trading in 2005 and during the worst of the financial crisis dropped 45% ,which although better than most issues from the large banks was far worse than the slow and steady 5% gain for Dominion Resources' (D) preferred stock, another holding in the fund, during the financial crisis.
Although that is just one example, I believe that REITs and insurance companies are financials and also believe that a preferred stock fund that really excludes all financials is a great idea. While a repeat of 2008 is very unlikely, if it happens then PFXF is likely to drop meaningfully in value.
At the time of publication the author had no positions in the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
This contributor reads:
On Twitter, this contributor follows: TheStalwart
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV