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Preferred Stock ETF Yielding 6% Recovers After Sell-Off


The largest ETF indexed to preferred shares that pays a yield of nearly 6% has recouped some of the steep losses it absorbed when interest rates shot higher.

The iShares U.S. Preferred Stock ETF (PFF) has climbed back above its 200-day simple moving average after briefly falling below this technical indicator for the first time since January 2012.

PFF holds $11.4 billion of assets and sports a 12-month yield of about 5.8%, according to manager BlackRock. The ETF is down nearly 3% for the trailing month despite the recent bounce. [Rising Rate Concerns Weigh on Preferred Stock ETFs]

Preferred stock and other high-yield ETFs were hit hard when interest rates jumped in May and the first couple weeks of June. Yields on the 10-year Treasury note nearly touched 2.3% earlier this month.

Preferred shares are hybrid securities that combine features of equities and bonds. Like bonds, preferred shares are highly vulnerable to pressure from interest-rate shifts, reports Chris Dieterich for WSJ.com’s MoneyBeat blog.

When rates go up, preferred stock prices fall, says Morningstar analyst Abby Woodham in a profile of PFF.

Last week, investors have pulled $422 million from the preferred stock ETF, according to IndexUniverse data. Trading volume in the fund is elevated in June.

iShares U.S. Preferred Stock ETF

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.