Principal Spectrum Preferred Securities Active ETF: A Deep Dive
The Principal Spectrum Preferred Securities Active ETF (PREF) is an income-focused exchange-traded fund (ETF) that primarily invests in preferred securities issued by financial companies. Preferred securities are debt instruments that offer a fixed dividend payment and have priority over common stockholders in the event of bankruptcy. PREF aims to keep pace with inflation, making it an attractive option for investors seeking income that maintains purchasing power.
Historical Performance
Despite its income focus and inflation-beating potential, PREF has not been immune to market downturns. Long-term shareholders have witnessed a decline in both their capital and income. For instance, between 2007 and 2021, PREF’s total return was negative (-1.44%), while its capital appreciation was even more dismal (-10.73%)
Comparison with Peers
Compared to other preferred securities ETFs like iShares Preferred and Income Securities ETF (VPR) and PowerShares Preferred Portfolio (PFXF), PREF lags behind in yield, total return, and risk-adjusted performance. As of February 2023, VPR’s yield was 4.43%, while PFXF’s was 4.55%. PREF, on the other hand, offered a yield of 4.15%. In terms of total return, VPR and PFXF outperformed PREF as well, with 1-year returns of 5.35% and 5.12%, respectively, compared to PREF’s 3.22%.
Risk and Volatility
One of PREF’s strengths is its lower volatility compared to its peers. Preferred securities are generally considered less risky than common stocks due to their priority status in bankruptcy proceedings. This lower risk translates to a more stable dividend income stream for investors. However, this stability comes at a cost: lower returns.
Impact on Individual Investors
For individual investors seeking a stable income stream with a focus on capital preservation, PREF could be an attractive option. However, it is essential to understand the trade-off between risk and return. Given PREF’s lower yield and total return compared to its peers, investors may need to consider other income-generating investments or adjust their expectations for returns.
Impact on the World
The underperformance of PREF compared to its peers could have implications for the broader financial markets. Preferred securities are an essential component of the capital structure of many financial institutions. As such, the performance of preferred securities ETFs like PREF can impact investor sentiment towards the financial sector and, by extension, the overall economy.
Conclusion
The Principal Spectrum Preferred Securities Active ETF is an income-oriented ETF that focuses on preferred securities from financial companies. While it offers the potential for inflation-beating income, its historical performance has been lackluster, with both capital and income declining for long-term shareholders. Compared to its peers, PREF lags in yield, total return, and risk-adjusted performance. For individual investors seeking a stable income stream, PREF could be an option, but it’s crucial to understand the trade-off between risk and return. The underperformance of PREF could also have implications for the financial markets and the broader economy.
- PREF is an income-focused ETF investing in preferred securities from financial companies.
- Historical performance has been lackluster, with negative total return and capital appreciation.
- Lower yield, total return, and risk-adjusted performance compared to peers VPR and PFXF.
- Lower volatility due to its focus on preferred securities.
- Implications for individual investors seeking income and the financial markets as a whole.
