ETF Research and Analysis
by Scott BurnsSuitability
The PowerShares Preferred PGX ETF is good for investors who are looking for a little extra fixed-income yield and are willing to take on the risks imbedded in moving down the capital structure from debt to do so. As of September 2009, 86% of the fund's holdings were issued by companies in the financials sector. Read more
The PowerShares Preferred PGX ETF is good for investors who are looking for a little extra fixed-income yield and are willing to take on the risks imbedded in moving down the capital structure from debt to do so. As of September 2009, 86% of the fund's holdings were issued by companies in the financials sector. Read more
Bull Case
Preferred securities are higher up in the capital structure pecking order, making them relatively safer than common stock.
Preferred securities generally pay out consistent dividends like bonds, but are taxed like common dividends.
Financial firms (which constitute 85 % of this fund's holdings) have been dealing from a position of weakness lately, causing the yields on their preferred stocks to skyrocket as they look for more capital. Read more
Bear Case
The financials sector has been reeling of late as a result of the credit and housing market crises. This fund contains preferred shares of some of the weaker players in the industry.
Even though preferred securities are higher in the capital structure than common stock, they are not as credit protected as debt. If a financial firm goes bankrupt, its preferred shareholders will at best get cents on the dollar, but most likely they will receive nothing.
Unlike in the past, many of the preferred issues in this fund are noncumulative in nature. That means the company will not pay preferred dividends in arrears if it suspends its dividend. Read more
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