PRIZ targets preferred stocks with above-average yields, aiming to deliver high current income with less interest rate sensitivity than traditional bonds. The fund provides exposure to hybrid securities that sit between stocks and bonds in the capital structure.
How It Works
The ETF follows a proprietary Zacks methodology that screens preferred securities for yield, credit quality, and liquidity. Holdings are weighted by market cap with individual position caps to prevent concentration. The portfolio typically includes both fixed-rate and floating-rate preferreds from financial institutions, utilities, and REITs, rebalanced quarterly to maintain yield targets.
Key Features
- Higher yields than investment-grade bonds with potential tax advantages from qualified dividends
- Diversified across issuers and preferred types, reducing single-security call risk
- Lower duration than long-term bonds while offering equity-like upside in rate cuts
Risks
- Subordinated to bonds means 50-70% losses possible in issuer bankruptcy vs 20-30% for senior debt
- Call risk can cap upside — issuers often redeem when rates fall below coupon rates
- Thin trading in individual preferreds can create 2-5% bid-ask spreads during market stress
Who Should Own This
Best suited for income-focused investors who want yields above corporate bonds but can stomach more credit risk and price volatility. Works well for retirees seeking current income or as a 5-10% satellite position for investors looking to juice portfolio yield without extending duration significantly.