PFF vs PFFA: Index Preferreds, or an Active Sleeve?

Overview

PFF and PFFA are both ETFs focused on U.S. preferred securities, but they take fundamentally different approaches. PFF is a passive index tracker holding the broad universe of dollar-denominated preferred and hybrid securities, while PFFA is actively managed, concentrating on what its managers identify as income-generating preferred stocks and opportunistic credit positions. The resulting distribution rate difference — 10.04% for PFFA versus 5.85% for PFF — reflects both active security selection and a willingness to pursue higher-yielding or more complex preferred structures. That 1.66 percentage point fee gap is substantial and eats directly into returns. Second, PFFA's higher 10.04% distribution rate comes with higher turnover and concentration in opportunities its team believes are mispriced; PFF's 5.85% reflects the yield available across the entire index with minimal trading.

Who each is best for

PFF: Fits investors who want broad, low-cost exposure to the preferred securities market and are comfortable accepting the market's distribution yield without relying on active management to boost income.

PFFA: Fits investors who believe preferred markets have mispricing opportunities and value active security selection enough to accept higher fees, and who seek higher current income than the index provides.

Key risks to know

• NAV erosion at elevated distribution yields. PFFA's 10.04% yield significantly exceeds typical underlying preferred security coupons (which cluster in the 5–6% range), suggesting a material portion may represent return of capital rather than earned income. This approach erodes net asset value over time, particularly in rising-rate environments where reset preferred securities face principal pressure.

• Active management concentration risk. PFFA's smaller AUM and active mandate may concentrate its portfolio in opportunities its managers favor, creating higher single-name or sector risk than PFF's diversified index exposure. If those bets underperform, the strategy has less natural diversification to cushion the impact.

• Fee drag in sideways or declining markets. PFFA's 2.11% fee is only justified if active returns exceed costs. In flat or down markets for preferred securities, that fee becomes a pure drag on PFFA holders that PFF investors do not bear.

• Preferred securities credit and structural risk. Both funds hold hybrid and preferred securities that sit below common equity in capital structure; in a credit shock, these can underperform or face conversion risk if issuers face distress.

Bottom line

If you want broad preferred exposure with minimal fees and transparent index methodology, PFF is the straightforward choice. If you believe active managers can identify mispriced preferred opportunities worth a 1.66% fee increase and accept that PFFA's higher yield may rely partly on capital return, that strategy appeals. Either way, preferred securities carry credit and structure risk distinct from traditional bonds or equities—past performance doesn't predict future results.