Preferred stocks are one corner of the market where most retail investors are better served by an ETF than by buying individual securities directly. Convenience is part of the reason, but the more important issue is complexity. Individual preferred shares can be surprisingly difficult to evaluate and manage.
Many preferred issues carry call provisions that allow the issuer to redeem them early if interest rates fall. Others feature fixed-to-floating or reset-rate structures, where the dividend resets according to a predetermined formula after several years. Beyond those mechanics, investors also face meaningful differences in credit quality, cumulative versus non-cumulative dividends, perpetual versus fixed maturities, and a frequently overlooked liquidity problem: many preferred issues simply do not trade in size, making entry and exit far more expensive than it appears on paper.
An ETF addresses most of these problems at once. Investors get instant diversification across hundreds of preferred securities, daily portfolio transparency, professional management, and regular monthly distributions, without having to assess each issue on its own terms.
Today, dozens of preferred stock ETFs compete for income-oriented capital. Three stand out for distinct reasons: one is the category’s dominant fund by asset size, a second strips out the heavy financial-sector concentration that defines most preferred benchmarks, and a third pushes yield higher through leverage and active management for investors willing to accept the additional risk that comes with it.
iShares Preferred and Income Securities ETF (PFF)
iShares Preferred and Income Securities ETF (NYSEARCA:PFF) remains the largest preferred stock ETF on the market, with approximately $13.1 billion in assets under management. The fund passively tracks the ICE Exchange-Listed Preferred and Hybrid Securities Index, providing exposure to roughly 460 preferred and hybrid securities across a range of credit qualities and structures.
PFF carries a 0.45% expense ratio and currently generates a dividend yield near 5.6%. It has also historically exhibited far lower volatility than the broad equity market, with a beta of approximately 0.45 measured against the S&P 500, reflecting how preferred securities tend to behave more like bonds than common stocks during periods of market turbulence.
One feature that immediately stands out is the fund’s heavy allocation to financial institutions, which represent more than half of the portfolio. That concentration is structural, not incidental. Banks and insurance companies are among the largest issuers of preferred securities precisely because preferred stock lets them raise regulatory capital without diluting common shareholders or adding traditional debt. Because index-based ETFs like PFF weight holdings by market capitalization, the largest issuers naturally dominate the portfolio.
On credit quality, roughly 47% of PFF’s holdings carry investment-grade ratings, while about 35% are classified as non-rated. That non-rated figure deserves context: many preferred issues from large, financially sound companies simply never go through the formal rating process. Non-rated is not synonymous with speculative.
VanEck Preferred Securities ex Financials ETF (PFXF)
Investors who want preferred stock income without the heavy financial-sector tilt have a clean alternative. VanEck Preferred Securities ex Financials ETF (NYSEARCA:PFXF) excludes financial-sector issuers entirely and has grown to approximately $2.6 billion in assets under management. Its expense ratio stands at 0.40%, slightly below PFF’s.
Removing banks and insurers produces a noticeably different portfolio. Electric utilities become the largest sector at roughly one-quarter of assets, followed by software and information technology, residential and commercial real estate, and aerospace and defense. The result is a fund whose income profile looks like preferred stocks but whose sector map looks little like a typical preferred index.
Credit quality is broadly similar to PFF. Just over one-quarter of holdings carry BBB-level ratings, while more than half are non-rated, with the same caveat applying: non-rated preferred securities issued by large, capital-intensive companies are not automatically suspect. Risk is comparable too, with a beta near 0.57, and the fund currently yields approximately 6.4% on a trailing dividend basis.
Virtus InfraCap U.S. Preferred Stock ETF (PFFA)
For investors whose primary goal is maximizing monthly income, Virtus InfraCap U.S. Preferred Stock ETF (NYSEARCA:PFFA) takes a different approach entirely and currently generates a dividend yield above 10%.
Unlike PFF and PFXF, PFFA is actively managed rather than index-tracking. That discretion lets the managers target one of the more persistent risks in passive preferred investing: negative yield to call. This occurs when a preferred share trades well above its call price while paying only a modest dividend. If the issuer redeems the security at its lower call value, investors can see enough principal erode to offset much or all of the income they received. A passive fund tracking an index must hold these securities regardless; an active manager can step aside.
PFFA also employs portfolio leverage, typically in the range of 15% to 25% of fund assets. Leverage amplifies income when conditions are favorable but magnifies losses when preferred prices decline, particularly in periods of rising interest rates. The fund’s Q1 2026 commentary noted that leverage and related interest expenses detracted from returns during a quarter when preferred stocks pulled back alongside broader risk assets. That is a real and recurring cost of the strategy.
The combined weight of leverage and active management pushes the total expense ratio to approximately 2.48%, which is substantially higher than either PFF or PFXF. Those costs compound over time and reduce net returns. Investors should weigh them explicitly against the income premium PFFA offers.
Even so, the fund’s three-year total return record is difficult to dismiss. Over that period, PFFA has generated an annualized total return near 11.6%, comfortably ahead of the broader preferred stock category. Whether that gap persists depends heavily on the interest rate environment and the managers’ ability to continue navigating call risk and leverage costs effectively.
Editor’s note: This pass updated PFF’s assets under management to approximately $13.1 billion, revised PFF’s beta to 0.45, updated PFFA’s total expense ratio to approximately 2.48% and its dividend yield to above 10%, updated PFXF’s assets to approximately $2.6 billion and its yield to approximately 6.4%, and added context from PFFA’s Q1 2026 commentary on the performance drag from leverage costs during that period.
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