PFF vs. HYG: What’s The Difference?

The iShares Preferred and Income Securities ETF (PFF) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are both among the Top 100 ETFs. PFF is a iShares Preferred Stock fund and HYG is a iShares High Yield Bond fund. So, what’s the difference between PFF and HYG? And which fund is better?

The expense ratio of PFF is 0.02 percentage points lower than HYG’s (0.46% vs. 0.48%). PFF also has a high exposure to the utilities sector while HYG is mostly comprised of BB bonds. Overall, PFF has provided higher returns than HYG over the past 11 years.

In this article, we’ll compare PFF vs. HYG. We’ll look at industry exposure and performance, as well as at their fund composition and risk metrics. Moreover, I’ll also discuss PFF’s and HYG’s holdings, portfolio growth, and annual returns and examine how these affect their overall returns.

Summary

PFF HYG
Name iShares Preferred and Income Securities ETF iShares iBoxx $ High Yield Corporate Bond ETF
Category Preferred Stock High Yield Bond
Issuer iShares iShares
AUM 19.8B 20.03B
Avg. Return 6.90% 6.42%
Div. Yield 4.47% 4.44%
Expense Ratio 0.46% 0.48%

The iShares Preferred and Income Securities ETF (PFF) is a Preferred Stock fund that is issued by iShares. It currently has 19.8B total assets under management and has yielded an average annual return of 6.90% over the past 10 years. The fund has a dividend yield of 4.47% with an expense ratio of 0.46%.

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is a High Yield Bond fund that is issued by iShares. It currently has 20.03B total assets under management and has yielded an average annual return of 6.42% over the past 10 years. The fund has a dividend yield of 4.44% with an expense ratio of 0.48%.

PFF’s dividend yield is 0.03% higher than that of HYG (4.47% vs. 4.44%). Also, PFF yielded on average 0.48% more per year over the past decade (6.90% vs. 6.42%). The expense ratio of PFF is 0.02 percentage points lower than HYG’s (0.46% vs. 0.48%).

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Fund Composition

Holdings

PFF - Holdings

PFF Holdings Weight
Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A 2.54%
BlackRock Cash Funds Treasury SL Agency 2.3%
Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L- 1.79%
Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L- 1.49%
ArcelorMittal S.A. 5.5% 1.36%
Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A 1.35%
Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B 1.14%
NextEra Energy Inc Unit 1.12%
Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 1.08%
Avantor Inc Ser A 0.99%

PFF’s Top Holdings are Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A, BlackRock Cash Funds Treasury SL Agency, Wells Fargo & Co 7 1/2 % Non Cum Perp Conv Pfd Shs -A- Series -L-, Bank of America Corp 7 1/4 % Non-Cum Perp Conv Pfd Shs Series -L-, and ArcelorMittal S.A. 5.5% at 2.54%, 2.3%, 1.79%, 1.49%, and 1.36%.

Danaher Corp PRF CONVERT 15/04/2022 USD – Ser A (1.35%), Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B (1.14%), and NextEra Energy Inc Unit (1.12%) have a slightly smaller but still significant weight. Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.4 and Avantor Inc Ser A are also represented in the PFF’s holdings at 1.08% and 0.99%.

HYG - Holdings

HYG Bond Sectors Weight
BB 56.53%
B 31.27%
Below B 11.4%
BBB 0.61%
AAA 0.28%
A 0.0%
AA 0.0%
US Government 0.0%
Others -0.09%

HYG’s Top Bond Sectors are ratings of BB, B, Below B, BBB, and AAA at 56.53%, 31.27%, 11.4%, 0.61%, and 0.28%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.

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Risk Analysis

PFF HYG
Mean Return 0.52 0.46
R-squared 9.39 4.1
Std. Deviation 7.87 6.96
Alpha 3.45 3.58
Beta 0.81 0.48
Sharpe Ratio 0.72 0.7
Treynor Ratio 6.79 10.01

The iShares Preferred and Income Securities ETF (PFF) has a Alpha of 3.45 with a Sharpe Ratio of 0.72 and a R-squared of 9.39. Its Mean Return is 0.52 while PFF’s Beta is 0.81. Furthermore, the fund has a Standard Deviation of 7.87 and a Treynor Ratio of 6.79.

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a Alpha of 3.58 with a Beta of 0.48 and a Treynor Ratio of 10.01. Its R-squared is 4.1 while HYG’s Mean Return is 0.46. Furthermore, the fund has a Standard Deviation of 6.96 and a Sharpe Ratio of 0.7.

PFF’s Mean Return is 0.06 points higher than that of HYG and its R-squared is 5.29 points higher. With a Standard Deviation of 7.87, PFF is slightly more volatile than HYG. The Alpha and Beta of PFF are 0.13 points lower and 0.33 points higher than HYG’s Alpha and Beta.

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Performance

Annual Returns

PFF vs. HYG - Annual Returns

Year PFF HYG
2020 7.94% 4.12%
2019 15.62% 14.23%
2018 -4.77% -1.93%
2017 8.33% 6.09%
2016 1.26% 13.92%
2015 4.62% -5.55%
2014 13.45% 2.0%
2013 -0.59% 5.9%
2012 18.25% 13.83%
2011 -2.2% 5.89%
2010 13.96% 12.07%

PFF had its best year in 2012 with an annual return of 18.25%. PFF’s worst year over the past decade yielded -4.77% and occurred in 2018. In most years the iShares Preferred and Income Securities ETF provided moderate returns such as in 2015, 2020, and 2017 where annual returns amounted to 4.62%, 7.94%, and 8.33% respectively.

The year 2019 was the strongest year for HYG, returning 14.23% on an annual basis. The poorest year for HYG in the last ten years was 2015, with a yield of -5.55%. Most years the iShares iBoxx $ High Yield Corporate Bond ETF has given investors modest returns, such as in 2011, 2013, and 2017, when gains were 5.89%, 5.9%, and 6.09% respectively.

Portfolio Growth

PFF vs. HYG - Portfolio Growth

Fund Initial Balance Final Balance CAGR
PFF $10,000 $20,272 6.90%
HYG $10,000 $19,427 6.42%

A $10,000 investment in PFF would have resulted in a final balance of $20,272. This is a profit of $10,272 over 11 years and amounts to a compound annual growth rate (CAGR) of 6.90%.

With a $10,000 investment in HYG, the end total would have been $19,427. This equates to a $9,427 profit over 11 years and a compound annual growth rate (CAGR) of 6.42%.

PFF’s CAGR is 0.48 percentage points higher than that of HYG and as a result, would have yielded $845 more on a $10,000 investment. Thus, PFF outperformed HYG by 0.48% annually.


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