PFF: A Bad Choice Among Preferreds, And Not Just Among Them

An analyst argues that the iShares Preferred and Income Securities ETF (PFF) is an inferior choice for preferred stock exposure due to its passive management style in a market that benefits from active selection. The analyst suggests that the fund's returns are not competitive compared to actively managed alternatives like PFFA, and that its callable feature does not effectively hedge against rising interest rates, recommending purpose-built instruments like RISR for hedging instead. The author expresses personal opinions and does not provide financial advice.

Analysis

The iShares Preferred and Income Securities ETF (PFF) is subject to critical review due to its purely passive management strategy in the preferred stock market, a segment where the analyst contends active management offers superior outcomes. This passive approach is argued to make PFF, which registers a significantly negative sentiment score of -0.8, less competitive compared to actively managed alternatives like Virtus InfraCap U.S. Preferred Stock ETF (PFFA), which receives a positive sentiment score of 0.6. The article posits that PFF's returns do not adequately compensate for its equity-like risk profile, especially when compared against high-yield alternatives. Furthermore, the efficacy of PFF's callable features as a hedge against rising interest rates is questioned, with the article noting that its performance does not substantiate this claim and suggests that purpose-built instruments such as FolioBeyond Alternative Income and Interest Rate Hedge ETF (RISR), with a slightly positive sentiment of 0.2, are more suitable for such hedging objectives. The views expressed are noted as the author's personal opinions and not as financial advice.

Key Decisions for Investors

• Investors should scrutinize the passive management approach of PFF and consider whether actively managed preferred stock ETFs, such as PFFA, might offer more competitive risk-adjusted returns in the current market environment.
• For portfolios requiring a hedge against rising interest rates, it is advisable to evaluate dedicated hedging instruments like RISR, as the article casts doubt on PFF's effectiveness in this capacity.
• Given the asserted underperformance and criticisms of PFF's strategy, investors might re-evaluate their allocation to PFF, potentially exploring alternatives for preferred stock exposure or high-yield investments if yield is the primary objective.