Invesco Preferred ETF

PGX

Market cap $3.93B

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.

PGX offers diversified exposure to preferred securities, with 80% in fixed-rate instruments and a moderate risk profile focused on the financial sector. The fund's average credit rating is BBB, and it delivers a 10-year NAV return of 2.99% with a 0.5% management fee. Invesco Preferred ETF's holdings are sensitive to interest rate changes, as rising rates typically pressure fixed-rate preferred prices downward.

Exchange-traded funds (ETFs) are must-haves if you're currently in retirement and you're looking for income.

PGX invests primarily in fixed-rate preferred securities and bonds, offering diversified exposure with an average credit rating of BBB and a 0.5% management fee. A significant portion of the portfolio trades below par, providing decent current yields. The fund's 10-year NAV return is modest at 2.77%, but current yields and discounted prices suggest improved future returns for income-focused investors.

Market volatility presents both risks and opportunities, emphasizing the importance of timing over price action for successful trading and investing. Pair trades with sound financial logic, like long treasuries and short corporate fixed-rate perpetuities, can capitalize in times of distress. The recently opened pair trade in iShares 10-20 Year Treasury Bond ETF and Invesco Preferred ETF generated significant profits due to credit spread widening.

Income-based investors often devote a large part of their securities research time looking at bonds.

We think the Invesco Preferred ETF's duration of 9.47 years is concerning in today's volatile interest rate environment, making it less desirable for risk-averse investors. The ETF's 70%+ concentration in financials introduces sector risk, especially given the current economic uncertainty and potential for cyclical reversion. Spread and discount rate risks have entered the building, meaning preferred shares a probably worth cherry-picking.

PGX's passive structure and retail investors' lack of effort lead to overvaluations; alternatives can outperform PGX with better yields and credit ratings. PGX invests in fixed-rate preferred stocks, baby bonds, and securities above par, but suffers from high management fees and suboptimal trading practices. Our alternatives offer higher yields and better credit ratings without management fees, providing superior returns compared to PGX's portfolio.

2025 marks a time of uncertainty for many investors—despite stellar performance in 2024 and a post-election bump that lasted through mid-December, the S&P 500 and the market as a whole face increasing geopolitical turmoil, a potential change to the regulatory environment for many industries alongside a new administration, haziness around the near-term future of interest rates, the ongoing impact of the AI revolution, and more. It's understandable that many investors might take a defensive approach in the new year.

Preferred stock ETFs may be a compelling opportunity for 2025. Tailwinds for preferred ETFs this year include deregulation, stable interest rates, and a steepening yield curve.