PFF vs. SHY: What’s The Difference?

The iShares Preferred and Income Securities ETF (PFF) and the iShares 1-3 Year Treasury Bond ETF (SHY) are both among the Top 100 ETFs. PFF is a iShares Preferred Stock fund and SHY is a iShares Short Government fund. So, what’s the difference between PFF and SHY? And which fund is better?

The expense ratio of PFF is 0.31 percentage points higher than SHY’s (0.46% vs. 0.15%). PFF also has a high exposure to the utilities sector while SHY is mostly comprised of AAA bonds. Overall, PFF has provided higher returns than SHY over the past 11 years.

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

Summary

PFF SHY
Name iShares Preferred and Income Securities ETF iShares 1-3 Year Treasury Bond ETF
Category Preferred Stock Short Government
Issuer iShares iShares
AUM 19.8B 19.51B
Avg. Return 6.90% 1.27%
Div. Yield 4.47% 0.46%
Expense Ratio 0.46% 0.15%

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 1-3 Year Treasury Bond ETF (SHY) is a Short Government fund that is issued by iShares. It currently has 19.51B total assets under management and has yielded an average annual return of 1.27% over the past 10 years. The fund has a dividend yield of 0.46% with an expense ratio of 0.15%.

PFF’s dividend yield is 4.01% higher than that of SHY (4.47% vs. 0.46%). Also, PFF yielded on average 5.62% more per year over the past decade (6.90% vs. 1.27%). The expense ratio of PFF is 0.31 percentage points higher than SHY’s (0.46% vs. 0.15%).

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%.

SHY - Holdings

SHY Bond Sectors Weight
AAA 99.67%
Others 0.33%
Below B 0.0%
B 0.0%
BB 0.0%
BBB 0.0%
A 0.0%
AA 0.0%
US Government 0.0%

SHY’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 99.67%, 0.33%, 0.0%, 0.0%, and 0.0%. The fund is less weighted towards BBB (0.0%), A (0.0%), and AA (0.0%) rated bonds.

Risk Analysis

PFF SHY
Mean Return 0.52 0.09
R-squared 9.39 39.11
Std. Deviation 7.87 0.89
Alpha 3.45 -0.03
Beta 0.81 0.18
Sharpe Ratio 0.72 0.54
Treynor Ratio 6.79 2.6

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

The iShares 1-3 Year Treasury Bond ETF (SHY) has a Beta of 0.18 with a Sharpe Ratio of 0.54 and a Standard Deviation of 0.89. Its R-squared is 39.11 while SHY’s Mean Return is 0.09. Furthermore, the fund has a Alpha of -0.03 and a Treynor Ratio of 2.6.

PFF’s Mean Return is 0.43 points higher than that of SHY and its R-squared is 29.72 points lower. With a Standard Deviation of 7.87, PFF is slightly more volatile than SHY. The Alpha and Beta of PFF are 3.48 points higher and 0.63 points higher than SHY’s Alpha and Beta.

Performance

Annual Returns

PFF vs. SHY - Annual Returns

Year PFF SHY
2020 7.94% 3.01%
2019 15.62% 3.42%
2018 -4.77% 1.45%
2017 8.33% 0.27%
2016 1.26% 0.75%
2015 4.62% 0.43%
2014 13.45% 0.48%
2013 -0.59% 0.23%
2012 18.25% 0.31%
2011 -2.2% 1.43%
2010 13.96% 2.23%

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 SHY, returning 3.42% on an annual basis. The poorest year for SHY in the last ten years was 2013, with a yield of 0.23%. Most years the iShares 1-3 Year Treasury Bond ETF has given investors modest returns, such as in 2014, 2016, and 2011, when gains were 0.48%, 0.75%, and 1.43% respectively.

Portfolio Growth

PFF vs. SHY - Portfolio Growth

Fund Initial Balance Final Balance CAGR
PFF $10,000 $20,272 6.90%
SHY $10,000 $11,486 1.27%

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 SHY, the end total would have been $11,486. This equates to a $1,486 profit over 11 years and a compound annual growth rate (CAGR) of 1.27%.

PFF’s CAGR is 5.62 percentage points higher than that of SHY and as a result, would have yielded $8,786 more on a $10,000 investment. Thus, PFF outperformed SHY by 5.62% annually.


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