by Meredith Larson, Product Manager, VanEck VectorsTM ETFs
As the search for yield continues, preferred securities have become a beacon of potential income. However, a large proportion of the preferreds universe, approximately two-thirds, is made up of traditional financial companies, including banks.1 Some investors may want to limit their exposure to financials or avoid them all together. Fortunately, excluding financials from a portfolio of preferred securities does not have to mean sacrificing yield potential and may help overall diversification.
Competitive Yield Potential
Excluding traditional financials from the preferreds universe has not meant giving up the yield potential. An index of non-financial preferreds, as represented by the Wells Fargo® Hybrid and Preferred Securities ex Financials Index yielded 6.1%, as compared to 5.7% from the broad-based Wells Fargo® Hybrid and Preferred Securities Aggregate Index, as of July 31, 2016.2
Attractive Risk/Return Tradeoff
While the impact on yield has been negligible,…