Q&A on PowerShares Preferred Portfolio ETF

Following are excerpts from a recent article in ETF Report magazine on why Worth clients own Power Shares Preferred Portfolio ETF (symbol PGX).

Q. What drew you to PGX?
A. We like PGX because 1) it has a good dividend yield; and 2) it has a lot less volatility than the underlying holdings, especially with the volatility in the market we’ve seen this year.

Q. How do you use PGX for clients?
A. PGX fits into the core part of our portfolios where clients need primary income plus growth. Most investors, we’ve discovered, have never owned preferred stock.

Q. Since you first got into PGX, have you added to or reduced your holdings?
A. We’ve held PGX at the same percentage in the portfolio, but we’ve added other types of preferred stock ETFs: PowerShares Financial Preferred Portfolio, (PGF) and the iShares U.S. Preferred Stock ETF

Q. What is it that you like about PGX compared with other funds in that space?
A. We like the major holdings of the ETF. We also like its liquidity and the average volume.

Q. What downsides are there to owning PGX?
A. Preferred stock competes with other securities in income sector so we’ll want to watch for the day we see higher interest rates. A competing security could cause selling pressure on preferred stock should investors switch out of preferred and into, say, corporate bonds, Treasury bonds, etc.

Q. Many people think that over the course of 2015, interest rates will go up. What do you think?
A. It’s a possibility, but then again, everyone was predicting it at this time last year as well. No one knows exactly when that day will come. We do follow some indicators: yield curve, what the Fed’s doing, etc. Time will tell, but when interest rates do rise, I personally feel that bond mutual funds and ETFs may have a greater risk than some of the preferred portfolios.

Q. How so?
A. For example, liquidity. Everyone knows the bond market is huge, but when a lot of people get on one side of a bond issue, then it may become illiquid. So if we get a big rate hike and everyone starts selling bonds, then we think there may be a greater risk in individual bonds or bond funds than in preferred stock ETFs.

Q. Do you think that there needs to be more education about the preferred stock space?
A. I do think a lot of advisors overlook preferred stock. They’re so concentrated on individual bonds, bond mutual funds, bond ETFs and so on, that they don’t explore outside of traditional fixed-income areas.

Q. PGX has experienced some volatility in tracking its index. Is that something you’re concerned about?
While we do look at tracking error, our main concern is if PGX maintains its dividend. Right now, PGX is paying an 88 cent per year dividend, paid out monthly at about 7 cents a month.

Sources. ETF.com, Dividend.com
Contact us if you would like to discuss your financial goals with a Worth Asset Management Advisor.
Keep in mind that past performance is not indicative of future results. In addition, there may be other Exchange Traded Products that offer exposure to the sectors mentioned and each has their unique perspectives and characteristics. It is important to determine if they are appropriate for your personal portfolio.

Disclosure: Worth Asset Management is a Registered Investment Adviser with the state of Texas. Jim Clark and/or his clieist2_13028339-defining-a-business-plannts may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The comments and opinions offered herein are not personalized recommendations to buy, sell or hold securities.

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