2025-09-02
Income-focused ETFs have become an essential part of the modern investing landscape. While traditional bonds and dividend-paying stocks continue to attract attention, specialised funds like the PFF ETF offer a unique mix of higher yields and diversification. Formally known as the iShares Preferred and Income Securities ETF, PFF is one of the largest preferred stock ETFs in the world.
This article explains what the PFF ETF is and how it works, tracing its history, composition, and role in income-focused strategies. By the end, readers will have a comprehensive understanding of its strengths, limitations, and market relevance in 2025.
The PFF ETF was launched in 2007 by iShares, a brand under BlackRock. It gives investors broad access to preferred stocks and hybrid income securities. Preferred stocks are unique instruments that combine the fixed-income-like dividends of bonds with some equity-like features.
Investors choose PFF because it simplifies access to this market. Instead of researching and buying dozens of individual preferred securities, they can purchase a single ETF that provides exposure to a diversified portfolio.
The PFF ETF’s journey reflects the changing landscape of global finance.
In 2007, when it launched, it immediately gained attention from income-seeking investors. But in 2008, the financial crisis tested its resilience. With a large allocation to bank-issued preferreds, PFF’s value fell sharply, teaching investors early on that credit concentration was a real risk.
From 2009 to 2019, PFF stabilised and grew in popularity. The low interest rate environment of that decade made its yields particularly attractive. Government bonds often yielded less than inflation, so PFF became a go-to vehicle for retirees and conservative investors.
During the 2020 pandemic, volatility spiked again. In March 2020, PFF dropped significantly before rebounding as the Federal Reserve slashed interest rates. Investors who understood how the PFF ETF works—as a hybrid security fund sensitive to rates—were able to anticipate its recovery.
In 2021 and 2022, inflation surged. Central banks raised interest rates aggressively, pushing down the prices of fixed-income-style instruments, including PFF. This period highlighted the ETF’s vulnerability to rate cycles.
By 2023 and 2024, as inflation cooled, PFF began to recover. Investors once again sought yield, especially as bond markets stabilised. In 2025, the ETF remains a mainstay in portfolios that prioritise regular income.
The PFF ETF collects money from investors and allocates it across hundreds of preferred and hybrid securities in line with its benchmark index. As the underlying securities pay dividends, the ETF passes this income along to shareholders, typically on a monthly basis.
Investors can buy or sell shares of PFF on major exchanges just like any stock. This makes the ETF far more accessible than purchasing individual preferred securities, which can be illiquid and complex to trade.
Investors are drawn to the PFF ETF primarily for yield. While common equities offer growth and bonds offer safety, preferred stocks sit in between. They deliver higher payouts than government bonds while offering more stability than equities alone.
PFF provides consistent income, diversification across hundreds of securities, and simplicity. Rather than researching the creditworthiness of individual issuers, investors can access the entire preferred market through a single ticker. For many, the fact that PFF trades like a stock adds convenience and liquidity.
Despite its appeal, the PFF ETF carries risks. The most significant is interest rate sensitivity. When interest rates rise, the value of preferred securities typically falls, as investors can find higher yields elsewhere. This dynamic caused losses in 2022.
Another limitation is credit concentration. Because banks and insurers issue most preferreds, PFF is heavily exposed to the financial sector. This was painfully clear in 2008 when financial institutions collapsed.
Liquidity can also become a concern in times of crisis, since preferred securities are less liquid than common equities. Finally, while PFF offers appealing dividends, issuers can suspend them in extreme conditions. Investors should never assume payouts are guaranteed.
The PFF ETF competes with several alternatives. Compared to bonds, it offers higher yields but greater risk. Versus equity dividend ETFs, it provides more predictable income but less growth potential. Compared to actively managed funds, it is cheaper and more transparent, though less flexible in adjusting to market conditions.
The choice depends on investor goals. For those seeking stable monthly income, PFF is appealing. For those seeking growth or maximum safety, other options may be preferable.
The PFF ETF’s prospects in 2025 hinge on the trajectory of interest rates and the health of the financial sector. With inflation moderating, central banks are less aggressive, which supports preferred securities. Strong demand for yield also favours funds like PFF.
However, risks remain. If inflation picks up again or if the financial sector faces stress, PFF could face headwinds. As always, investors need to balance its benefits with its vulnerabilities.
The PFF ETF is a specialised income vehicle that simplifies access to preferred securities. For those seeking to understand what the PFF ETF is and how it works, the answer lies in its structure: it pools investor funds into a diversified basket of preferred and hybrid securities, distributing the dividends back to shareholders each month.
Its appeal comes from consistent income, liquidity, and diversification. Its risks stem from interest rate sensitivity, sector concentration, and credit events. For income-focused investors, especially retirees, PFF can be a powerful addition to a portfolio—but it should be used thoughtfully and balanced with safer assets.
The dividend changes with the performance of the underlying securities. While yields vary, PFF usually offers higher payouts than government bonds.
Yes. Many investors hold PFF in retirement portfolios because it provides monthly income. However, retirees must be cautious about its rate sensitivity and sector exposure.
PFF pays dividends monthly, unlike many ETFs that pay quarterly. This feature is especially attractive for income-dependent investors.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment, or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
