Is the bank crisis over? Post mortems are already arriving, but the rising rates that pressured bank balance sheets are still here. Although government responsiveness may have tamed the initial wave of contagion, JP Morgan Chase CEO Jamie Dimon, for one, noted Tuesday that he believes the crisis is not yet over. For those investors and advisors who agree and want to adjust their equities allocations, non-bank preferred stocks and their priority dividend exposure can be found in the right ETF.
Preferred stock, known also as preferred shares or even just as “preferreds,” are offered out by all sorts of firms, offering holders priority status for receiving dividends and can yield more in current income than common stocks, generally speaking. Whether set to an adjustable rate or not, preferreds come in a wide variety of flavors based on duration, priority status, or even convertibility into common stock.
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Preferreds even tend to feature higher yields than a garden variety dividend stock, with the kind of current income that can buoy portfolios amid both the bank crisis and the year’s existing challenges in rising rates and stubborn inflation. So what’s the catch? Well, preferreds are issued more often by one sector than others, and that sector happens to be banks.
That could be enough to put off some investors, but not all preferred stock comes from the banking sector. Advisors and investors can find non-bank preferred stocks handily wrapped in single ETFs like the American Century Quality Preferred ETF (QPFF).
Actively managed, QPFF charges a relatively low fee for an active strategy at 32 basis points (bps). QPFF invests in both U.S. and non-U.S. preferred stocks, with a notable lean away from depositor-based financials and instead towards bank holding companies that do not run the type of day-to-day operations that are exposed to the bank run contagion risk that panicked regulators.
QPFF screens using both fundamental and tech metrics like liquidity, credit risk, size, and quality, with quality meaning high-profitability issuers that can sustain their dividends throughout a tumultuous cycle – just like this one.
That’s helped QPFF weather a tumultuous year so far, returning 3.3% YTD and keeping close to the Bloomberg U.S. Aggregate Bond index, or the AGG, according to YCharts. It’s also outperformed its ETF Database Category Average and its Factset Segment Average in terms of annual dividend yields, offering a $2.01 annual dividend rate and a 5.7% yield compared to 5.55% and 4.4% respectively.
It may be easy to be turned off from the potent current income and yields available in preferreds due to how many have bank exposure. Looking under the hood of an ETF like QPFF, however, can tell a different story for the curious investor, with non-bank preferred stocks avoiding depositor risk. That may make QPFF a strategy to watch in the weeks and months ahead as a tumultuous U.S. market roils on.
For more news, information, and analysis, visit the Core Strategies Channel.
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