iShares US Preferred Stock (NYSEARCA:PFF)
iShares US Preferred Stock (NYSE:PFF) invests in a large basket of preferred stocks. Preferreds are attractive because they have qualities of both bonds and stocks. They trade like stocks, yet holders of preferreds are in front of common stockholders to collect back their principal if the company goes bankrupt.
In addition, if the company has to suspend dividends, it must suspend common dividends before preferred dividends.
Preferreds often trade in a very tight range, so there is little volatility. Companies that are financially solid will often have preferred shares that offer high yields. The PFF basket yields 6.52%, and holds many world-class financial stocks that are unlikely to experience trouble.
These include preferred shares of Barclays (NYSE:BCS), Wells Fargo (WFC), Citigroup (C) and Bank of America (BAC).
SPDR Barclays High Yield Bond (NYSEARCA:JNK)
SPDR Barclays High Yield Bond (NYSE:JNK)invests in a basket of junk bonds, but don’t let the word “junk” fool you. It doesn’t imply bonds that are going to default, but bonds that are not rated as highly as others. In order for a company to default on a bond payment, it must be in big trouble as a going concern.
If enough questions surround the viability of the company that when it issues debt, it must pay higher interest rates. That means higher yields for bond investors, and ETFs that invest in high yield instruments.
The ETF holds over 700 securities, and the largest holding only represents 0.77% of the fund. So any individual implosion is not going to take down the entire ETF.
It yields 5.79%
Lawrence Meyers owns shares of PFF.
This article is brought to you courtesy of Lawrence Meyers from Wyatt Investment Research.