iShares Preferred and Income Securities ETF

PFF

Market cap $13.3B

These funds offer better transparency and tax efficiency than other income options.

The iShares Preferred and Income Securities ETF (PFF) remains the largest preferred stock ETF on the market, managing approximately $13.17 billion in assets under management.

If you own the iShares Preferred and Income Securities ETF (NASDAQ:PFF) for the monthly check, the question that matters is whether those checks keep clearing through the next credit cycle.

The fear has taken root seemingly everywhere: the media, the bond market, the futures market. They've all bought into the idea that scorching price hikes (and high interest rates) are here to stay.

A 68-year-old retiree who wants to generate $42,000 a year in dividend income without constantly riding the swings of the S&P 500 faces a portfolio math problem that rewards precision.

iShares Preferred and Income Securities ETF offers diversified exposure to preferreds, with $13.7B AUM and a 5.6% TTM yield. PFF's portfolio is 62% financial institutions, 24% industrials, and spans 456 holdings across baby bonds, convertibles, and fixed/floating preferreds. PFF's largest allocation is 42% fixed-rate preferreds, with key sub-segments yielding and varying call/maturity profiles.

Approximately one-third of PFF's portfolio is invested in Mandatory Convertible Preferred Shares. These have contributed disproportionately to PFF's overall returns, which lag the overall category. PFF's exposure to Mandatory Convertible Preferred Shares has made it a riskier investment (as measured by its Standard Deviation) than both its benchmark index, and the overall Preferred Share category. Returns have been worse that the category as a whole, investors are not compensated for assuming this additional risk, and PFF has an extremely low Sharpe Ratio.

Rates are stuck, and most high-yield investors are positioned all wrong. I provide a detailed sector-by-sector breakdown of exactly where smart money is moving right now, including specific blue-chip picks trading at deep discounts. I also detail my disciplined capital recycling approach to accelerate my income and total return compounding in the current environment.

Two fundamentally strong investments now yield over 10%. Both of these 10%+ yielders have track records of outperformance and sustainable dividends. ARCC is trading at its deepest discount in years, and PFFA has managed to grow its payout for years despite being stuffed with fixed-income securities.

Most investors chase yield and quietly destroy their retirement income in the process. A surprisingly simple portfolio structure can produce 7%+ income without excessive risk. The strategy combines three powerful income engines most investors rarely use correctly.