It is linked to an index that tracks the broad performance of the US preferred stock market, holding fixed-rate, floating-rate, cumulative, and trust preferred shares issued by US financial and industrial companies on a market-cap-weighted basis.

It suits income-focused investors who want a higher dividend yield than bonds while still reducing some of the volatility of common stocks.

Global X (Mirae Asset) launched it in 2017 as a passively managed ETF that tracks an index.

It holds a broad range of preferred shares with various structures issued across the United States, aiming to deliver the average return of the preferred stock market. It includes fixed-rate, floating-rate, cumulative, and trust preferreds, and its monthly dividends provide a steady cash flow.

• Broad coverage that includes fixed, floating, cumulative, and trust preferreds
• Monthly dividend payments provide regular cash flow

Assets under management (AUM) stand at $1.9B, and the expense ratio is 0.23% per year.

Preferred stocks have dividend priority over common stocks and tend to yield more than bonds, but they are highly sensitive to interest rates and face downward price pressure when rates rise. PFFD maintains a fee level below the category average.

Returns on preferred stock ETFs vary with the direction of interest rates. When expectations of rate cuts grow, inflows tend to increase as investors look for bond substitutes, while performance tends to lag when rates are rising.

Financial companies account for a large share of issuers in the US preferred stock market. Changes in the capital-raising structures of banks and insurers, as well as the regulatory environment, can affect preferred issuance volumes and supply and demand. Demand for income and the interest rate cycle are the key variables driving fund flows.

Its strengths are monthly dividends and broad diversification across preferred stocks, while its weaknesses are high interest rate sensitivity and limited capital gain opportunities compared with common stocks.

Comparable products in the same preferred stock category shown in the table include PGX, PFXF, and VRP. PGX belongs to the iShares family and has a similar structure, while PFXF focuses on floating-rate preferreds. VRP centers on floating-rate preferreds and offers somewhat better defense in a rising rate environment. AMLP and MLPA, which mainly hold master limited partnerships in energy infrastructure, have a different asset structure from preferreds, but they are alternatives that income-seeking investors often review together. Beyond preferreds, investors considering a shift to a dividend growth strategy can also compare related dividend ETFs.

These are the key points to review before investing in PFFD. Because preferred stocks combine characteristics of bonds and stocks, it is important to check the interest rate environment and dividend stability in advance.

When rates rise, downward price pressure on fixed-rate preferreds grows, and depending on an issuer's credit condition, there is also an inherent risk of dividend cuts. Because of the high concentration in financial stocks, the fund is exposed to changes in the credit environment across the financial sector.

For investors who want regular monthly dividend income, it is a way to gain diversified exposure to the US preferred stock market as a whole. It is advisable to adjust its weighting within your portfolio in light of its interest rate sensitivity and financial sector concentration.