Invesco Preferred ETF (PGX) seeks to track the ICE BofAML Core Plus Fixed Rate Preferred Securities Index, which measures the performance of fixed-rate, U.S. dollar-denominated preferred stocks and securities convertible to preferred stocks. This income-focused ETF provides exposure to hybrid securities that rank above common stock but below bonds in capital structure.
How It Works
PGX uses a passively managed, market-value-weighted approach that replicates its benchmark index through full replication or representative sampling. The fund holds approximately 250-300 preferred securities issued primarily by financial institutions, utilities, and REITs. Holdings are weighted by market capitalization with quarterly rebalancing to maintain index alignment. The ETF focuses on investment-grade and high-yield preferred stocks with fixed dividend rates.
Key Features
- Provides 4.94% dividend yield from preferred securities that typically offer higher income than common stocks
- Concentrated exposure to financial sector preferreds, comprising roughly 60-70% of holdings from banks and insurers
- One of the largest and most liquid preferred stock ETFs with over 15 years of operating history
Risks
- This ETF can lose significant value when interest rates rise, as preferred securities have bond-like sensitivity to rate changes, potentially declining 10-20% in rising rate environments
- Heavy concentration in financial sector preferreds means the fund will underperform if banking regulations tighten or financial stress emerges
- Credit risk exists as many holdings are below investment grade, with potential for dividend cuts or principal losses during economic downturns
Who Should Own This
Best suited as a satellite holding (5-15% of fixed income allocation) for income-focused investors with medium-to-high risk tolerance seeking higher yields than traditional bonds. Requires 3+ year time horizon due to interest rate sensitivity. Appropriate for investors comfortable with credit risk and sector concentration in exchange for enhanced dividend income.