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PFFD ETF Struggles: Consistently Underperforms Peers

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  Published in Stocks and Investing on Tuesday, February 24th 2026 at 18:53 GMT by Seeking Alpha
      Locales: Delaware, California, New York, UNITED STATES

Tuesday, February 24th, 2026 - The Invesco Tactical US Preferred ETF (PFFD) continues to struggle, consistently trailing its peers in a challenging, yet potentially rewarding, segment of the fixed-income market: preferred securities. A recent analysis of the fund's performance, expenses, and strategy reveals a concerning pattern of underdelivery, raising questions about its suitability for investors seeking exposure to this asset class. While broader macroeconomic headwinds certainly impact the preferred stock sector, PFFD's internal factors appear to be exacerbating its difficulties.

Understanding Preferred Stocks & the ETF Landscape

Preferred stocks represent a hybrid security, possessing characteristics of both stocks and bonds. They typically offer a fixed dividend payment, similar to bonds, but unlike bonds, these payments aren't legally obligated. Preferred shareholders have priority over common stockholders in the event of liquidation, but rank below bondholders. The appeal lies in their potentially higher yields than bonds, though they are also more sensitive to interest rate fluctuations. Exchange-Traded Funds (ETFs) like PFFD, the iShares Preferred and Income Securities ETF (PFF), the SPDR Flotilla Preferred Income ETF (PFA), and the WisdomTree U.S. Preferred Income ETF (USPI) provide a convenient and diversified way to access this market.

PFFD's Lagging Performance: A Three-Year Review (2021-2024)

From February 24th, 2021, to February 24th, 2024, PFFD demonstrably underperformed its key competitors. Data shows PFFD delivered a total return of -14.69%. In comparison, PFF returned -11.38%, PFA returned -10.77%, and USPI achieved -9.86%. These figures, while all negative reflecting the broader challenges faced by the preferred stock market during the rising interest rate environment of that period, highlight PFFD's significant disadvantage - a shortfall of 3.32% compared to PFF, 3.92% versus PFA, and a substantial 4.83% underperformance against USPI. This isn't a marginal difference; it represents a considerable erosion of potential returns for investors over a three-year holding period.

The Expense Ratio Burden

A primary driver of PFFD's underperformance is its relatively high expense ratio of 0.75%. This means that for every $10,000 invested, PFFD charges $75 annually in fees. While seemingly small, these costs compound over time and significantly impact net returns. Competitors offer substantially lower expense ratios: PFF at 0.50%, PFA at a remarkably low 0.35%, and USPI at 0.45%. The 0.30% difference between PFFD and the lowest-cost option, PFA, may appear minimal, but it's crucial when considered over the long term, especially in a relatively flat or declining market. In essence, PFFD investors are paying more for exposure to an asset that's already facing headwinds, and they're receiving less in return.

Deeper Dive: Portfolio Composition & Strategy

Beyond expenses, a closer look at the funds' portfolio compositions reveals further clues to PFFD's struggles. As of the latest data, PFFD holds 181 preferred stocks with an average maturity of 6.49 years and a credit quality rating of BB+. In contrast, PFF holds 249 securities, PFA boasts 258, and USPI includes 226. The significantly smaller number of holdings in PFFD suggests a less diversified portfolio, increasing its vulnerability to idiosyncratic risk - the risk associated with individual security performance. Furthermore, the highest average maturity of PFFD's holdings means it's more susceptible to interest rate risk; as rates rise, the value of longer-maturity preferred stocks tends to fall more sharply. The BB+ credit quality, while similar to its peers, warrants attention in a rising rate environment, as lower-rated securities typically experience greater price declines.

Macroeconomic Factors & Sector Headwinds

The broader preferred stock sector has faced significant headwinds, primarily due to the Federal Reserve's monetary policy tightening cycle. Rising interest rates put downward pressure on the prices of fixed-income securities, including preferred stocks. However, the superior performance of PFF, PFA, and USPI demonstrates that these challenges aren't insurmountable. These funds have managed to navigate the difficult environment more effectively, likely due to their lower expense ratios, greater diversification, and potentially more active and successful security selection.

Looking Ahead: Investor Considerations

While the preferred stock market may offer attractive yields, investors considering PFFD should carefully weigh its persistent underperformance against its peers. The combination of a high expense ratio, a less diversified portfolio, and a higher average maturity appears to be a detrimental one. Alternatives like PFF, PFA, and USPI offer comparable exposure to the preferred stock market at a lower cost and with potentially more robust risk management. Investors should conduct thorough due diligence and consider their risk tolerance before making any investment decisions.