Investing in a preferred ETF may be a better way to bet on a bank recovery.
According to The Preferred Way to Play Banks, WSJ reporter Peter Eavis writes that, to some investors, preferreds look enticing. The logic is that there is more than one scenario in which the value of preferred holdings could climb dramatically.
One example in the WSJ article is for Bank of America preferred – if the government determines that preferred should converted to common, the predetermined conversion ratio of 85% is far above where the preferred currently trades at 38% of par.
The relevant ETF is Powershares Financial Preferred Portfolio (PGF) which is up 66% since the March 9 low but is still down 59% over the past 12 months.
PGF’s top holdings include JPMorganChase, Bank of America and Barlcays.