Last updated: August 2026
This article is for informational purposes only and is not investment advice. See our full Disclaimer for details.
Preferred stock gets a passing mention in our What Are Bonds guide and our Best ETFs for Monthly Dividend Income guide as a hybrid asset class, without much explanation of what it actually is. This guide covers preferred stock ETFs directly — what makes this asset class genuinely different from both stocks and bonds, the interest-rate sensitivity that drives most of its price movement, and a structural sector bias that affects nearly every fund in this category.
What Preferred Stock Actually Is
Preferred stock sits between common stock and bonds in a company’s capital structure, borrowing characteristics from both. Like a bond, it typically pays a fixed (sometimes floating) dividend and sits ahead of common stockholders in priority if a company faces financial distress or liquidation. Like a stock, it represents equity ownership rather than a debt obligation, and its dividend — unlike a bond’s interest payment — isn’t a strictly guaranteed contractual obligation in every circumstance. In exchange for this higher-yielding, higher-priority position relative to common stock, preferred shareholders typically give up voting rights and any meaningful participation in a company’s growth beyond the fixed dividend.
Many preferred securities are also perpetual — they have no maturity date, unlike a bond, which is priced and behaves much like a very long-duration bond as a result, discussed further below.
Quick Comparison Table
| ETF | Approach | Expense Ratio | Approx. Yield |
|---|---|---|---|
| PFF | Broadest, most liquid, financials-heavy | 0.45%-0.46% | ~6.3%-6.4% |
| PFFD | Lower-cost alternative, similar holdings to PFF | 0.23% | ~5.8%-6.8% |
| PGX | Credit-rating screened, higher rate sensitivity | 0.50%-0.51% | ~6.0%-7.0% |
| PFXF | Excludes financial-sector preferreds | Varies | Varies |
| PFFA | Actively managed, leveraged for higher yield | ~2.11% | ~9.8%-11% |
Figures are approximate and change regularly, particularly yield, which fluctuates with interest rates and preferred share prices. Always confirm current figures on each issuer’s official fund page before investing.
1. iShares Preferred and Income Securities ETF (PFF) — The Largest, Most Liquid Option
PFF is the largest and most established preferred stock ETF, holding several hundred individual preferred and hybrid securities. Its scale gives it the deepest liquidity in the category, which matters most for larger trades or investors who value tight trading spreads.
Worth knowing: PFF’s 0.45%-0.46% expense ratio is meaningfully higher than several newer, lower-cost competitors tracking a similar underlying universe of preferred securities — a fee gap worth weighing against PFF’s liquidity advantage.
Best for: Investors who specifically value maximum liquidity and the reassurance of the largest, longest-established fund in the category.
2. Global X U.S. Preferred ETF (PFFD) — The Lower-Cost Alternative
PFFD tracks a broad, diversified index of U.S. preferred securities holding more than 200 positions, with a portfolio composition closely resembling PFF’s — heavy in preferred issuance from major banks (JPMorgan Chase, Wells Fargo, Bank of America, Morgan Stanley, Citigroup) alongside utilities and other large issuers. Its defining advantage is cost: at roughly half PFF’s expense ratio, PFFD has delivered a comparable or modestly higher net yield on an essentially similar underlying portfolio.
Worth knowing: PFFD pays monthly distributions, a detail relevant to investors specifically seeking regular income cash flow, covered in more depth in our Best ETFs for Monthly Dividend Income guide.
Best for: Cost-conscious, long-term investors who want broad preferred stock exposure similar to PFF without paying PFF’s higher fee.
3. Invesco Preferred ETF (PGX) — Higher Yield, Higher Rate Sensitivity
PGX takes a somewhat different approach from PFF and PFFD, applying a credit-rating screen to its holdings rather than a simple market-value weighting. That said, PGX has also carried meaningfully higher interest rate sensitivity than PFF or PFFD, with a duration cited around 10.2 years, compared to roughly 5 years for the other two — meaning PGX’s price moves considerably more for a given change in interest rates.
Worth knowing: PGX has also included a meaningful allocation to below-investment-grade securities (cited around 40% of the portfolio in some analyses), adding credit risk on top of its elevated rate sensitivity. During the March 2020 market stress, PGX reportedly declined roughly 25%, compared to roughly 20% for PFF over the same period — a real illustration of how these structural differences show up during actual market volatility, not just in abstract statistics.
Best for: Investors specifically seeking a higher yield and willing to accept meaningfully more interest rate and credit risk than PFF or PFFD carry.
4. VanEck Preferred Securities ex Financials ETF (PFXF) — Addressing the Sector Concentration Problem
This fund exists to solve a specific structural issue covered in more depth below: most preferred stock ETFs are heavily concentrated in the financial sector, since banks and insurers are the most frequent issuers of preferred securities (often to meet regulatory capital requirements). PFXF deliberately excludes financial-sector preferreds, instead drawing from utilities, real estate, energy, and other non-financial issuers.
Worth knowing: Removing financials doesn’t eliminate concentration risk — it shifts it toward whichever non-financial sectors dominate PFXF’s remaining eligible universe instead. It’s a tool for investors specifically trying to reduce bank-sector exposure, not a fully diversified alternative on its own.
Best for: Investors already holding significant financial-sector exposure elsewhere in their portfolio who want to avoid stacking more of it through their preferred stock allocation specifically.
5. Virtus InfraCap U.S. Preferred Stock ETF (PFFA) — Actively Managed, Leveraged, Highest Risk
PFFA takes a fundamentally different approach from the passive funds above: it’s actively managed, uses leverage to amplify its income, and as a result has delivered a considerably higher yield — commonly cited in the high single digits to low double digits — than any passive preferred fund. Its active manager selects across specific coupons, call dates, and issuers rather than simply tracking an index.
Worth knowing: That higher yield comes at a steep cost. PFFA’s expense ratio, commonly cited around 2.11%, is roughly ten times what a low-cost passive fund like PFFD charges — a fee level that meaningfully eats into total return over time, similar to the actively managed fund cost comparisons covered in our What Is an Expense Ratio guide. Leverage also means PFFA can amplify losses as well as gains relative to the unleveraged preferred market.
Best for: Income-focused investors who specifically understand and accept the added leverage, manager risk, and considerably higher fee in exchange for a meaningfully higher current yield than passive alternatives offer.
Why Interest Rates Drive Almost Everything in This Asset Class
This is the single most important concept for understanding preferred stock ETFs, and it echoes the duration concept covered in our Best Bond ETFs guide, but more intensely. Because many preferred securities are perpetual — with no maturity date at all — they behave like extremely long-duration bonds, making their prices unusually sensitive to interest rate expectations. Preferred shares are priced almost entirely off long-duration, long-term interest rates plus a credit spread reflecting the issuer’s financial strength; when long-term rates rise, existing preferred share prices tend to fall meaningfully, and vice versa. This is a considerably stronger version of the interest rate sensitivity that affects the bond funds covered throughout this site, given how much longer (often indefinite) many preferred securities’ effective duration runs compared to even a long-term Treasury bond fund like TLT.
The Financial Sector Concentration Bias
This is a structural feature of the preferred stock market itself, not a quirk of any single fund: banks and other financial institutions are, by a wide margin, the most frequent issuers of preferred stock, largely because preferred issuance helps them meet regulatory capital requirements. As a result, funds like PFF and PFFD — which simply track the broad preferred market — end up meaningfully overweighted in financials relative to a broad stock market fund like VOO. This is worth factoring in if you already hold significant financial-sector exposure elsewhere in your portfolio, since a preferred stock allocation doesn’t necessarily provide the sector diversification its “different asset class” framing might suggest.
Tax Treatment
Preferred dividends can be either qualified or non-qualified depending on the specific issuer and security structure, covered in more depth in our How Are ETF Dividends Actually Taxed guide — this varies more within the preferred stock category than it does for a simple stock index fund, since preferred securities span a range of structures (traditional preferred stock, trust preferred securities, and hybrid debt-like instruments) that can receive different tax treatment. It’s worth checking a specific fund’s tax character, rather than assuming all preferred stock income qualifies for the lower qualified-dividend tax rates.
Frequently Asked Questions
Is preferred stock safer than common stock? In terms of priority during a company’s financial distress, yes — preferred shareholders are paid before common shareholders. That said, preferred stock still carries meaningful price volatility, particularly tied to interest rate movements, and preferred dividends can be suspended under certain circumstances, so “safer” doesn’t mean risk-free.
Why do preferred stock ETFs pay such high yields? Partly because preferred shareholders give up the growth potential and voting rights common stockholders have, and partly because many preferred securities are perpetual, carrying the kind of extended interest rate sensitivity that typically commands a higher yield in exchange for that risk.
Why is PFF so much more expensive than PFFD if they hold similar securities? Largely reflecting PFF’s earlier launch date and established liquidity advantage rather than a fundamentally different investment approach — PFFD has emerged as a lower-cost alternative tracking a broadly similar universe of preferred securities.
Is PFFA’s high yield worth its much higher expense ratio? This depends on how much you value PFFA’s higher current income against its considerably higher fee, added leverage, and active-manager risk relative to a passive fund like PFFD. This is a genuine trade-off rather than a clear win for either approach, and reasonable investors weigh it differently based on their own income needs and risk tolerance.
How do rising interest rates affect preferred stock ETFs? Generally negatively on price, and often more severely than a typical bond fund, given how many preferred securities are perpetual and priced off long-duration rates. This is the single most important risk factor to understand before investing in this asset class.
Should I hold preferred stock ETFs instead of bond ETFs? They’re not simply interchangeable — preferred stock offers a higher yield than most investment-grade bonds but carries more equity-like and interest-rate risk, along with the structural financial-sector concentration covered above. Many investors who use preferred stock ETFs do so as a complement to, rather than a replacement for, the bond allocation covered in our Best Bond ETFs guide.
This article reflects publicly available fund data as of the “last updated” date above and is provided for informational purposes only — it is not a recommendation to buy or sell any security. Expense ratios, yields, duration, and holdings referenced above change over time; always verify current data directly on each issuer’s official fund page before making an investment decision. Read our full Disclaimer and Privacy Policy for more information.