iShares Preferred and Income Securities ETF

PFF

Market cap $14.6B

Creating passive income streams can take many forms. Investors can choose from a plethora of stocks, bonds, alternative assets (such as real estate) and other less-traditional options (including crypto, etc.

At various stages of life, we can have different financial goals and this will mean owning different exchange traded funds (ETFs).

iShares Preferred and Income Securities ETF (PFF) is favored over iShares High Yield Corporate Bond ETF (HYG) as the Fed has entered an easing cycle. PFF offers higher yield, better credit quality, and lower fees than HYG, with recent outperformance driven by expectations of falling rates and economic uncertainty. PFF's sector concentration in financials and lower diversification present risks, but Fed stress tests show banks are well-capitalized for downturns.

iShares Preferred and Income Securities ETF offers an attractive yield but is highly concentrated in the financial sector, increasing volatility risk. PFF's portfolio is diversified by issuer, but 68% exposure to financials makes it vulnerable to sector-specific shocks and interest rate volatility. PFF's yield is reasonable versus high-yield and investment-grade bonds, but its valuation is not compelling enough to warrant a Buy rating.

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PFF is the largest preferred stock ETF, holding nearly 450 securities, offering broad diversification and a focus on income generation. The fund's portfolio is mainly preferred stocks, baby bonds, and hybrid securities, with a significant portion trading below par, presenting capital appreciation potential. PFF is suitable for investors seeking moderate risk and balanced returns, especially those looking for exposure to higher coupon instruments as rates rise.

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