2 High-Yield Asset Classes Meet In A New ETF

Preferred stocks and real estate investment trusts are among the favored destinations for income investors. High yields and diversification away from traditional asset classes are among the reasons why.

The new InfraCap REIT Preferred ETF PFFR, which debuted Wednesday courtesy of Infrastructure Capital Advisors, marries preferreds and REITs. The new ETF tracks the Indxx REIT Preferred Stock Index, which holds preferred stocks issued by REITs.

Preferred Stocks

A preferred stock is a type of security that offers characteristics of both bonds and equities. The primary source of allure with preferreds is yield, although preferred shareholders are higher on the totem pole in the event of issuer bankruptcy or default than are common equity holders.

Income investors embraced preferred stocks, in large part, because of high yields, but as the spike in Treasury yields earlier this year and in 2013 taught investors, high-yielding assets are vulnerable to rising rates.

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“PFFR is the latest ETF to offer exposure to the REIT industry after S&P added REITs as the 11th sector in the S&P 500 and allows investors to invest in the real estate industry without having to select individual preferred securities. We also believe PFFR will be extremely attractive to investors looking for income in a yield-stretched market,” said InfraCap CEO Jay D. Hatfield in a statement.

Underlying Index, Performance

PFFR's underlying index can include “liquid preferred securities issued by REITs listed in the US. It may include preferred securities issued by Equity, Mortgage or Hybrid REITs. Preferred securities in the Index may include, without limitation, floating and fixed-rate preferred securities, callable preferred securities, cumulative and non-cumulative preferred securities, convertible preferred securities, trust preferred securities and depositary preferred securities,” according to the statement.

“As of December 31, 2016, the underlying index showed a 30-day SEC yield of 6.77 percent and an average yield-to-worst of 6.66 percent,” according to ETF Trends.

PFFR charges 0.45 percent per year, or $45 on a $10,000 investment.