VanEck Preferred Securities ex Financials ETF (PFXF) seeks to track an index of preferred securities while excluding financial sector companies. This strategy focuses on preferred stocks from non-financial sectors like utilities, energy, and telecommunications that typically offer higher dividend yields than common stocks but with lower volatility than equities.
How It Works
PFXF uses a passively managed approach that replicates its benchmark index by holding preferred securities from companies outside the financial sector. The fund employs market-capitalization weighting methodology and rebalances quarterly to maintain sector exclusions and index alignment. Holdings consist primarily of preferred stocks and hybrid securities from utilities, energy, and industrial companies that offer fixed or floating dividend payments with priority over common shareholders.
Key Features
- Excludes financial sector preferred securities, reducing concentration risk from bank regulatory changes and credit cycles
- Targets 5.23% dividend yield from non-financial preferred stocks with priority payment status over common equity
- Provides access to preferred securities market typically dominated by institutional investors with $1,000+ minimum purchases
Risks
- This ETF can lose value when interest rates rise, as preferred securities behave like bonds and decline when rates increase
- Credit risk exists if underlying companies face financial distress, potentially suspending or cutting preferred dividend payments entirely
- Limited liquidity in preferred securities market can cause wider bid-ask spreads and tracking errors during volatile periods
Who Should Own This
Best suited as a satellite holding (5-15% of fixed income allocation) for income-focused investors with 3-5 year time horizons seeking higher yields than traditional bonds. Medium risk tolerance required due to interest rate sensitivity and credit risk. Appropriate for investors wanting diversified preferred securities exposure without financial sector concentration.