Maximizing Yields for Falling Rates

In an environment where income is harder to come by, preferred securities remain appealing. These hybrid instruments sit between bonds and common equity in a company’s capital structure, offering higher coupons than bonds while retaining seniority over common stock. The appeal is amplified now, as many income-oriented investors brace for muted bond returns and look for additional yield.

By avoiding preferred securities issued by financial institutions (banks, insurers, etc.), PFXF focuses on high-yielding preferreds from utilities, REITs, industrial hybrids, and other non-financial issuers. That distinction matters in late 2025, as the financial sector faces renewed uncertainty.

Ex-financial preferreds sit toward the top of the income spectrum. At roughly 6.9% current yield, they outpace not only the S&P 500’s 1.1% dividend yield but also Treasuries (4.2%), high-grade corporates (4.7%), and even broad preferred-stock benchmarks (6.1%). In a market where traditional income sources remain compressed, that incremental yield can make a meaningful difference in total return potential and portfolio diversification.

Ex-Financial Preferreds Yield Comparison

Source: ICE Data Indices, FactSet as of October 2025. Yields presented are current yields (ratio of annual interest payment and the security’s current price), except for Equities’ dividend yield (dividend per share, divided by the price per share. Broad Preferred Securities universe is represented by the ICE Exchange-Listed Fixed & Adjustable Rate Preferred Securities Index (PFAR), Ex-Financial Preferreds represented by the ICE Exchange-Listed Fixed & Adjustable Rate Non-Financial Preferred Securities Index (PFAN), 10-Year U.S. Treasury represents ICE BofA Current 10-Year US Treasury Index (GA10), Equities represents S&P 500^® Index (SPX), High Grade Corporate Bonds represents ICE BofA US Corporate Index (C0A0), and High Yield Corporate Bonds represents ICE BofA US High Yield Index (H0A0). See disclaimers and index descriptions at the end of this presentation. An index's performance is not illustrative of a fund's performance. Indices are not securities in which investments can be made. Past performance is not a guarantee of future results.

Why Concentration Risk Adds Weight to the “Ex-Financials” Case

While investors often discuss “Mag 7” concentration in equities, few recognize that preferreds face an even greater imbalance toward Financials. Banks and insurers issue most preferred securities, leaving most broad preferred strategies heavily concentrated in one sector. This concentration means that shifts in regulation, credit conditions, or capital requirements can move a large portion of the preferreds market at once, reducing diversification and increasing volatility.

At the same time, the financial landscape itself is evolving. Growth in digital assets and stablecoin adoption is reshaping conversations around payments, deposits, and balance-sheet design. These changes are still developing, but they highlight how quickly business models at traditional financial institutions can shift. For preferred investors, that backdrop reinforces the value of reducing heavy exposure to any one sector.

By excluding Financials, PFXF avoids that concentration and provides access to preferred income sourced from utilities, REITs, industrial hybrids, and other non-financial issuers. The result is a more balanced and differentiated preferreds profile that complements, rather than mirrors, the financial sector’s cycle.

How to Manage Call Risk and Reinvestment Stability

A key differentiator for PFXF is its lower exposure to callable and perpetual preferred securities compared to the broader preferreds market. Many traditional preferreds can be called by issuers when rates decline, forcing investors to reinvest proceeds at lower yields, a dynamic known as call risk.

Because PFXF’s underlying holdings feature fewer perpetual and long-dated issues, the fund is naturally positioned with less call exposure. This structure helps preserve yield stability and reduces reinvestment risk during periods of falling rates or renewed issuance activity.

Source: ICE Data Indices, FactSet. Data as of 9/30/2025. Ex-Financial Preferreds represented by the ICE Exchange-Listed Fixed & Adjustable Rate Non-Financial Preferred Securities Index (PFAN) and Broad Preferred universe is represented by the ICE Exchange-Listed Fixed & Adjustable Rate Preferred Securities Index (PFAR). See disclaimers and index descriptions at the end of this presentation. An index's performance is not illustrative of a fund's performance. Indices are not securities in which investments can be made.

Access to Income and Diversification

The VanEck Preferred Securities ex Financials ETF (PFXF) provides diversified exposure to U.S.-listed preferred securities without the financial sector risk. By focusing on issuers such as utilities, REITs, and industrials, PFXF offers access to attractive income potential with broader sector diversification. The ETF combines high-yield opportunity, reduced bank exposure, and the convenience of a single, transparent vehicle for investors seeking preferreds without managing individual holdings.

The VanEck Preferred Securities ex Financials ETF (PFXF) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the ICE Exchange-Listed Fixed & Adjustable Rate Non-Financial Preferred Securities Index (PFAN4PM), which is intended to track the overall performance of U.S. exchange-listed hybrid debt, preferred stock and convertible preferred stock issued by non-financial corporations.

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