AAM Low Duration Preferred and Income Securities ETF (PFLD) seeks to provide current income by investing in preferred securities and other income-generating instruments with shorter duration profiles. This fixed-income ETF focuses on preferred stocks, hybrid securities, and similar instruments that offer higher yields than traditional bonds while maintaining lower interest rate sensitivity through duration management.
How It Works
PFLD employs an actively managed approach to select preferred securities, convertible preferred stocks, and other hybrid instruments based on credit quality, yield, and duration characteristics. The fund targets securities with shorter effective durations to reduce interest rate risk while maximizing current income. Portfolio managers actively adjust holdings based on market conditions, credit spreads, and interest rate environments. The strategy emphasizes securities from financial institutions, utilities, and REITs that typically issue preferred shares.
Key Features
- Attractive 5.52% dividend yield provides meaningful current income in low-rate environments while maintaining quarterly distribution schedule
- Active duration management reduces interest rate sensitivity compared to longer-duration preferred securities and traditional bond funds
- Zero expense ratio makes it cost-competitive for income-focused investors seeking preferred securities exposure without management fees
Risks
- This ETF can lose value when interest rates rise rapidly, as preferred securities are sensitive to rate changes despite shorter duration focus
- Credit risk from issuer defaults or downgrades can cause permanent capital loss, particularly during financial sector stress periods affecting preferred issuers
- Preferred securities can decline 20-30% during market stress as they rank below bonds but above common stocks in capital structure
Who Should Own This
Best suited for income-focused investors with 2-5 year time horizons seeking higher yields than traditional bonds with moderate risk tolerance. Appropriate as 5-15% satellite allocation for retirees or income portfolios. Requires understanding of preferred securities' hybrid nature and willingness to accept credit risk for enhanced yield over government bonds.