Will someone explain PFF to me?

I’ve been buying PFF for over a year.  It’s a ETF comprised of preferred stocks in the US.   http://us.ishares.com/product_info/fund/overview/PFF.htm?fundSearch=true&qt=PFFIt’s top ten holdings represent 15% of the fund, and ~80% of the fund is rated BB or better.  It’s slightly heavily weighted to banks, diversified, and insurance companies (mainly economically sensitive stuff).  It yields over 6%.  6%!  It pays out distributions monthly.  I started buying at $39 in 2012, and I pick some up every time it dips to that level (37,38,39).  Because this ETF doesn’t really move sometimes I’ll invest when I’ve freed up capital elsewhere and I need to keep money invested.  It now yields more the HYG (the main pillar of my portfolio).  Basically it’s a well diversified vehicle which yields 6% and has economic exposure in the case of either a big down turn or a big run.  What’s wrong with that?  PFF might be my perfect stock, I think I’ll go buy some more today.

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2 thoughts on “Will someone explain PFF to me?

  1. Sounds interesting- A 6-7% yield is definitely hard to ignore. I don’t really understand the mechanics of these types of ETF’s, however. Do you know if preferred stocks have a higher or lower risk relative to rising interest rates than traditional bond ETFs or other high yield vehicles like REITS, Mortgage REITS, bank loan ETFs, etc.? I like the idea of investing in higher yield, safer plays like this index, but I don’t understand how one should look at their eventual exit since there is no finite life to the index (new securities get replaced by old ones). Is the counter to this that the yield will likely always be higher than traditional bonds (and definitely inflation), so you shouldn’t worry about the asset price if you are a long term holder?

    http://seekingalpha.com/article/1974611-preferred-stocks-pay-7-percent-risks-and-taxes-explained?source=yahoo

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