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Preferred Shares ETFs
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About Preferred Shares ETFs |
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Preferred Shares ETFs Overview and forecast
This group of ETFs has had one of the wilder rides, both up and down, in the
2008-9 crash. This class of shares is traditionally considered a superior thing to
common stock, but the crash was no respecter of that status. The Preferred
Shares ETFs were hit, hard.
That's largely explained by the fact that these are by any standards
traditionally based investments. The only real difference is that instead of
buying common stock in blue chips, they opt for preferences. That, by any
possible standard, is conservative investment, and it's also the correct strategy
for any conservative approach, value driving the investment base.
It was also the main reason that the Preferred Shares ETFs were savaged. One
of them went down to nearly 25% of its peak value, before redeeming itself as
the markets improved. The weight of the big market stocks can be a burden.
The US Preferred Shares ETFs have started to show positive returns, and quite
respectable ones, after the March 2009 quarter, but it was a very long way
down.
One notable characteristic of these ETFs is that they trade in very large
numbers. They're extremely popular, and that has contributed to their rapid
recovery. They were sick for a while, but they got better almost instantly, in
terms of trading.
Short term (6 months)
It wouldn't be unfair to say the Preferred Shares ETFs can move in either
direction for any reason. They react to the major indices with great speed.
That's actually not some neurosis of the ETFs themselves. It's the way ETFs,
which are supposed to be index based, are supposed to react.
The problem with the Preferred Shares ETFs is that they're glued to the main
index. That means that the world's most neurotic fundamental index is
supposed to be a guide to the short term prospects of the Preferred Shares
ETFs. That's not quite the case. Preferred shares don't behave according the
same rules as common stock. Some prefs are given special returns, despite the
situation of the common stock. That can lead to some good returns for those
holding preference shares. The short term performance of the Preferred Shares
ETFs will have to be based on individual holdings.
Medium term (2 years)
In the medium term, Preferred Shares ETFs look a lot stronger. The spread of
preference stocks can be extremely complex, and the placements of non-voting
prefs by some major corporations has further complicated the mix. However,
preference shares are by definition income- earning shares. That adds
incentives in trading, as well as intrinsic value. So Preferred Shares ETFs aren't
likely to suffer from lack of interest as the stock market recovers.
The problems, if any, are likely to come from further down the food chain, in
terms of dividends, affecting the values of the preference shares on the
market. Even in good markets, this can be an irritating process. Traders will
shift according to perceived values. The overall prospects for the short term
are good, but the nature of the market will remain the same.
Long term (5 years)
There's a good reason for the standard statement that past performance isn't
an indicator of future earnings. It isn't, and nor are dividends. They do vary,
often a lot, over time. The tendency is for a common pattern of dividends over
a short term, but usually not over longer terms. Variations can be expected,
and like bonds, if a preference share's yield changes, so does its market value.
Investors in the Preferred Shares ETFs should be very mindful of the fact that
this is not an investment which can run on auto pilot. It will require watching.
Even advanced investors, operating spreads, will note that the Preferred Shares
ETFs are frequently inconsistent in terms of their holdings values. That can
undermine otherwise good performance, and traders can jump ship, hitting
prices, particularly if other areas of the market are moving.
Qualifiers to projections
Preferred stock is one of the few equity classes where the market,
uncharacteristically, calls a spade a spade, in terms of values. They trade up
prior to going ex dividend, and down after that date. Everything is usually
based on values alone. Preferred Shares ETFs are by any standards good solid
investments, most of the time. They're hardly controversial, in terms of their
values, but they were more severely affected by the market crash in various
cases than some common stock ETFs. That was partly because dividends were
the first, inevitable, casualties of the stampede to damage control as the crash
hit.
There's another basic risk with Preferred Shares ETFs, and preference shares in
general. The prefs are everybody's favorites, when they pay. They're dead
capital, when they don't, or their payout falls below a good level of return.
They become extremely unpopular under those conditions, and can languish in
the lower price ranges for a long time.
It's a very good idea to check out Preferred Shares ETFs in terms of the current
strengths of their holdings, and watch their trading margins. Values are the
defining aspects of their index.
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Last Updated on: 2010-01-14 02:03:40 |
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Quotes are updated automatically. Quotes are delayed. Etftips.com has not
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informational purposes only, not intended for trading purposes or advice.
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informational errors, incompleteness, or delays, or for any action taken in
reliance on information contained herein. By accessing the Etftips.com site, you
agree not to redistribute the information found herein. ETF Values can go up as
well as down.
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