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S&P U.S. Preferred Stock Index - 7-8% yield, what's the catch?

• tocomment 16y ago
  How can a fund made up of S&P 500 stocks have this high of a yield? It's higher than BP's yield. Are there risks with preferred stocks or this index that I'm not aware of? I can't seem to find much information online.
  • awa 16y ago
    http://www2.standardandpoors.com/spf/pdf/index/SP_US_Preferred_Stock_Index_Methodology_Web.pdf http://www2.standardandpoors.com/spf/pdf/index/SP_US_Preferr... The S&P U.S. Preferred Stock Index is designed to serve the investment community’s need for an investable benchmark representing the U.S. preferred stock market. Highlights The index is comprised of U.S. traded preferred stocks that meet criteria relating to minimum size, liquidity, exchange listing and time to maturity. The index is calculated with a modified capitalization weighted scheme, with modifications being made to index shares to prevent single stock concentration and improve index liquidity. The index is rebalanced once a year, in September, when index shares and constituents are reviewed. Corporate actions such as maturity, conversion, calls and delistings are treated according to a set of rules further defined in this document.
• patio11 16y ago
  One major risk is heavy concentration in the financial sector, presumably because banks use preferred stock much more frequently and at higher yields than other companies. Bank of America (disclaimer: shareholder) has something like a dozen or more share classes. Some of them had very attractive yields a few years ago -- and still have attractive yields, but lost 80%+ of the value over the interim. (Note there is a risk of non-payment of the dividend, and in some cases it will never be payed.)
  • tocomment 16y ago
    So the market must think it's very risky then. I wonder if there are any other risks.