New Preferred-Stock ETF Seeks to Avoid Financials
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
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
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
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts