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Preferred Stock ETFs: Fiscal Cliff Rebound Play?


Prior to Monday's market rally, fears of the fiscal cliff had been wreaking havoc on even the most conservative dividend-paying sectors.

Energy and telecom names represent most of the rest of CNPF's sector allocations. The thesis here is simple: International stocks have shareholders in other countries that will not be affected by the fiscal cliff. Meaning international dividend ETFs, of which CNPF is one, could prove to be an excellent fiscal cliff survival tool. Plus, CNPF pays a monthly dividend.

PowerShares Preferred Portfolio (NYSEARCA:PGX): No, it is not fair to refer to an ETF with over $2 billion in assets under management as "obscure," but the PowerShares Preferred Portfolio is somewhat overlooked in comparison to some of its larger rivals. PGX amounts to a good news/bad news type of ETF. Follow along.

Good news: 30-day SEC yield of 6.52%. Bad news: More than 91% allocated to financials. Good news: PGX pays a monthly dividend. Bad news: One-third of the ETF's holdings have non-investment grade ratings. The good news is that PGX can be summed up with two positive tidbits investors need to acknowledge. The overall credit quality of its portfolio is superior to that of PFF's and the ETF's beta is far below that of its iShares rival.

Market Vectors Preferred Securities ex Financials ETF (NYSEARCA:PFXF): The Market Vectors Preferred Securities ex Financials ETF is a case study in how a new ETF that is entering an arena fraught with competition can be successful. Following its July debut, PFXF has $92.3 million in AUM and those inflows have likely been driven by two simple factors.

First, PFXF has an expense ratio of 0.4%, meaning it is the cheapest preferred ETF on the market. Second, the fund is not excessively weighted to bank stocks. The exclusion of traditional banking names means a less volatile fund. Simply put, PFXF is doing something right. Since its debut, the fund has outperformed all of the other ETFs highlighted here.

Editor's Note: This content was originally published on by The ETF Professor.

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