Published February 11, 2013
Just to be clear, Apple (AAPL) has not yet issued preferred shares, but the company has the right to do so. The iPad and iPhone maker is also asking shareholders to vote on a proposal later this month that would require their approval before the company issues preferred stock.
Greenlight Capital's David Einhorn, who wants to see Apple return more of its massive $137.1 billion cash hoard to investors, last week sued Apple over the proposal. The hedge fund manager is alleging the company is making it more difficult to issue dividend-paying preferred shares by asking shareholders to approve such action.
In one corner there is Greenlight Capital and in another, defending Apple, is the California Public Employees Retirement System. The largest public employees pension plan in the U.S. owns 2.7 million Apple shares, according to Reuters.
Bottom line: Apple might issue preferred shares, a class of stock that has both debt and equity traits, but it appears unlikely that will happen overnight. If the company does move forward with that plan at some point in the future, investors that want to access Apple preferreds via ETFs might have just one option. That being the Market Vectors Preferred Securities ex Financials ETF (PFXF).
When the Market Vectors Preferred Securities ex Financials ETF debuted last July, naysayers could have viewed the fund as a niche play, a gratuitous grab for yield-starved investors' attention or both. The reality is PFXF quickly proved to be one of the better new ETF ideas that debuted in 2012.
An assets under management tally of $138.4 million speaks to that fact. That number, along with average daily volume of over 97,000 shares, a solid amount for a new ETF, highlight the fact that investors have been looking for something new when it comes to preferred stock ETFs.
The "something new" is why, barring the introduction of a copycat ETF, PFXF will be the first ETF home for Apple preferreds, assuming the company issues that stock. Unlike every other preferred stock ETF on the market today, PFXF is not excessively weight to the financial services sector. As one example, the SPDR Wells Fargo Preferred Stock ETF (PSK), which has $347.5 million in AUM, devotes 83.5 percent of its weight to preferreds issued by financial services firms.
On the other hand, at least nine of PFXF's top-10 holdings, are not preferreds by way of financial services companies. The ETF's top-10 holdings, which account for over 37 percent of the fund's weight, include issues from General Motors (GM), Apache (APA) and United Technologies (UTX).
PFXF's sector breakdown includes an almost 30 percent weight to REITs, a 23 percent allocation to utilities and a 12.5 percent weight to automobile manufacturers. It may not sound like it, but that is diverse by the standards of preferred ETFs.
Obviously, since Apple has not confirmed it will issue preferred shares, there is no way of knowing whether PFXF will ever be home to Apple. For income investors, that is alright for now because PFXF has a 30-day SEC yield of 6.07 percent and an expense ratio of 0.4 percent, the lowest among preferred ETFs. In the past 90 days, PFXF has outperformed PSK and two other major preferred ETFs by decent margins.
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