Why Preferred Stock ETFs Are Attracting Growing Investor Interest in Today's Market

The investment landscape has shifted noticeably in recent months. As interest rate expectations have become more favorable and portfolios tilt defensively, preferred stocks have emerged as a compelling asset class. These hybrid securities combine elements of both stocks and bonds, offering unique advantages that traditional equity or fixed-income investments cannot match.

Understanding Preferred Stocks: A Hybrid Asset Class

Before diving into specific funds, it’s worth understanding what makes preferred stocks distinctive. These securities occupy a middle ground between common equity and bonds. Preferred shares generate substantial income through dividends—typically exceeding what the S&P 500 or conventional bond funds deliver. Investors holding preferred shares rank higher in the capital structure; should a company falter or declare bankruptcy, preferred holders receive distributions before common equity owners.

Yet preferred stocks retain bond-like characteristics. They carry assigned par values, feature maturity dates, and react to interest rate fluctuations much like fixed-income securities do. This dual nature creates opportunities for income-focused investors seeking both stability and yield.

The Preferred ETF Landscape Gains Momentum

The preferred ETF space has expanded significantly, with multiple funds now offering distinct strategies and approaches. The iShares Preferred and Income Securities ETF, the category’s largest by assets, exemplifies this growth. Trading near 9% gains year-to-date with a 30-day SEC yield of 5.28%—considerably attractive compared to broader market benchmarks—this fund demonstrates renewed institutional attention toward the space.

Five Strategies Worth Exploring

Sector-Specific Exposure: VanEck Vectors Preferred Securities ex Financials ETF

The VanEck Vectors Preferred Securities ex Financials ETF represents an intentional differentiation strategy. By excluding financial sector issuers—a historically large segment due to post-crisis capital requirements—this fund concentrates roughly 71% in utility, real estate, and telecom preferred stocks. Its 0.41% annual expense ratio is reasonable, and the 5.77% yield demonstrates that excluding financials doesn’t compromise income potential. Over three years, this approach has outperformed comparable alternatives by 430 basis points.

Active Management Excellence: Virtus InfraCap U.S. Preferred Stock ETF

Active management has proven its value in the preferred stock space. The Virtus InfraCap U.S. Preferred Stock ETF delivers evidence of this approach’s merit. Up 15% year-to-date, this fund’s management evaluates companies across multiple dimensions: competitive positioning, return-on-capital potential, earnings stability, cash generation capacity, and capital access. Despite charging 0.80% annually, its first-year track record shows 1.60% gains where passive counterparts struggled.

Cost Efficiency Champion: Global X U.S. Preferred ETF

For budget-conscious investors, the Global X U.S. Preferred ETF offers compelling value. At just 0.23% yearly—roughly half the category average of 0.43%—this fund manages $260 million while holding 237 preferred stocks. Tracking the ICE BofAML Diversified Core U.S. Preferred Securities Index, it delivers steady year-to-date performance and a respectable 5.70% yield.

REIT-Focused Strategy: InfraCap REIT Preferred ETF

A specialized approach emerges through the InfraCap REIT Preferred ETF, which targets preferred shares issued exclusively by real estate investment trusts. This niche has flourished this year; the fund is up nearly 12%. REITs already provide elevated yields; when combined with preferred share characteristics, the result is particularly attractive. The fund’s 5.89% yield reflects this synergy. Additionally, REIT-issued preferreds typically carry less leverage and demonstrate more predictable cash flows than those from financial institutions.

Quality-Focused Selection: Innovator S&P Investment Grade Preferred ETF

The Innovator S&P Investment Grade Preferred ETF takes a quality-conscious approach, concentrating on investment-grade issuers (BBB- and above). Holding 110 stocks, with 92%+ rated BBB-level or higher, this fund emphasizes stability. Despite a 0.47% fee, it delivers a competitive 5.15% yield while maintaining careful credit discipline.

Why This Moment Matters

The convergence of favorable rate expectations and defensive positioning has created optimal conditions for preferred stocks. These securities deliver income substantially above traditional alternatives while maintaining portfolio stability. The variety of preferred ETF strategies—from sector exclusions to REIT specialization to quality filters—allows investors to match their specific risk profiles and income objectives.

Whether seeking diversified exposure or specialized focus, the preferred ETF universe offers tailored solutions for yield-seeking portfolios in today’s market environment.