Top Picks 2016: PowerShares Preferred

01/13/2016 7:00 am EST

Focus: ETFs

The income universe is rapidly changing for 2016 with the announcement of the Federal Reserve’s intentions to continue gradually raising interest rates, notes David and Michael Fabian, editors of Flexible Growth and Income Report.

Nevertheless, there remains attractive and low volatility opportunities to profit during this new phase.

The PowerShares Preferred Portfolio (PGX) is positioned as an alternative asset class in our Flexible Growth and Income Report as we begin the New Year. 

This exchange-traded fund is comprised of 218 preferred securities that are primarily focused on the banking, REIT, and utility sectors. Preferred stocks are unique in that they offer characteristics of both equity and debt instruments.

This means they can provide non-correlated returns and high income streams during periods of subdued growth in other areas of the income marketplace.

PGX has a current 30-day SEC yield of 5.90% and dividends are paid monthly to shareholders. This makes for an attractive and steady income stream when compared to other options such as dividend paying stocks or high yield bonds. 

Furthermore, the price action of PGX has shown far less overall volatility in 2015 than other high yield areas such as junk bonds or master limited partnerships.

In our opinion, this ETF is suitable to be used as a tactical holding within the context of a well diversified income portfolio.

That means a small allocation can enhance the overall yield of your portfolio, while providing exposure to a unique asset class with capital appreciation potential as well. PGX has over $3.2 billion in total assets and an embedded expense ratio of 0.50%.

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