When it comes to investing in the stock market, there are various options available. One such option is preferred stock. Preferred stocks are a type of equity investment that combines features of both common stocks and bonds. They offer investors a fixed dividend payment and priority over common shareholders in case of liquidation.
For those looking to invest in preferred stocks but don’t have the time or expertise to build their own portfolio, preferred stock mutual funds can be an excellent choice. These funds pool money from multiple investors and invest in a diversified portfolio of preferred stocks, providing individuals with exposure to this asset class without the need for individual stock selection.
In this article, we will explore eight preferred stock mutual funds that investors can consider:
1. iShares Preferred and Income Securities ETF (PFF):
The iShares PFF is one of the largest and most popular preferred stock ETFs available today. It aims to track the performance of the S&P U.S. Preferred Stock Index, providing exposure to a broad range of U.S.-listed preferred securities.
2. Invesco Preferred ETF (PGX):
The Invesco PGX is another well-known preferred stock ETF, seeking investment results corresponding to the ICE BofAML Core Plus Fixed Rate Preferred Securities Index. This fund offers exposure primarily to fixed-rate US dollar-denominated cumulative perpetual preferred securities.
3. Nuveen Preferred & Income Opportunities Fund (JPC):
Nuveen JPC is a closed-end fund that seeks high current income consistent with capital preservation by primarily investing in a diversified portfolio of preferred securities and other income-producing investments.
4. Fidelity Convertible Securities Fund (FCVSX):
While not solely focused on preferred stocks, FCVSX may include convertible securities issued by companies that pay dividends classified as qualified dividend income for tax purposes.
5. John Hancock Preferred Income Fund II (HPF):
HPF invests at least 80% of its net assets in a diversified portfolio of preferred securities and other income-producing instruments. The fund aims to provide a high level of current income consistent with prudent investment management.
6. Principal Preferred Securities Fund (PPSIX):
The PPSIX seeks high current income by investing primarily in preferred securities, including convertible preferred stock, as well as other income-producing securities.
7. Schwab U.S. Preferred Stock ETF (PFD):
The Schwab PFD is designed to track the performance of the Dow Jones U.S. Select Preferred Stock Index, which represents the preferred stock segment of the U.S. equity market.
8. Vanguard Convertible Securities Fund (VCVSX):
Similar to FCVSX, VCVSX is not exclusively focused on preferred stocks but may invest in convertible bonds that offer potential for capital appreciation and fixed-income yield.
Investing in these mutual funds can be an effective way for individuals to gain exposure to preferred stocks without having to manage individual holdings themselves. However, it’s essential to consider certain factors before making any investment decisions:
a) Expense ratios: Look for funds with low expense ratios as they will have a lesser impact on your overall returns.
b) Performance history: Analyze a fund’s historical performance over different time periods and compare it against its benchmark index.
c) Diversification: Consider funds that provide broad exposure across various sectors rather than concentrating on specific industries.
d) Risk tolerance: Understand your risk tolerance and choose funds accordingly, considering factors such as interest rate sensitivity and credit quality.
While these preferred stock mutual funds can be sound investments, it’s crucial to consult with a financial advisor or do thorough research before making any investment decisions based on your unique financial goals and risk appetite.
In conclusion, investing in preferred stock mutual funds can offer investors access to this asset class without requiring them to select individual stocks themselves. The options listed above are some well-established and reputable choices worth considering for those interested in gaining exposure to preferred stocks. Remember always to conduct thorough research and seek professional advice before making any investment decisions.