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PFF vs. TLT: What’s The Difference?

The iShares Preferred and Income Securities ETF (PFF) and the iShares 20+ Year Treasury Bond ETF (TLT) are both among the Top 100 ETFs. PFF is a iShares Preferred Stock fund and TLT is a iShares Long Government fund. So, what’s the difference between PFF and TLT? And which fund is better?

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

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

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Summary

PFFTLT
NameiShares Preferred and Income Securities ETFiShares 20+ Year Treasury Bond ETF
CategoryPreferred StockLong Government
IssueriSharesiShares
AUM19.8B15.15B
Avg. Return6.90%9.00%
Div. Yield4.47%1.5%
Expense Ratio0.46%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 20+ Year Treasury Bond ETF (TLT) is a Long Government fund that is issued by iShares. It currently has 15.15B total assets under management and has yielded an average annual return of 9.00% over the past 10 years. The fund has a dividend yield of 1.5% with an expense ratio of 0.15%.

PFF’s dividend yield is 2.97% higher than that of TLT (4.47% vs. 1.5%). Also, PFF yielded on average 2.10% less per year over the past decade (6.90% vs. 9.00%). The expense ratio of PFF is 0.31 percentage points higher than TLT’s (0.46% vs. 0.15%).

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Fund Composition

Holdings

PFF - Holdings

PFF HoldingsWeight
Broadcom Inc Broadcom Inc 8 % Mandatory Convertible Preferred Stock Ser A2.54%
BlackRock Cash Funds Treasury SL Agency2.3%
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 A1.35%
Danaher Corp 5% PRF PERPETUAL USD 1000 – Ser B1.14%
NextEra Energy Inc Unit1.12%
Citigroup Capital XIII Floating Rate Trust Pfd Secs Registered 2010-30.10.41.08%
Avantor Inc Ser A0.99%

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%.

TLT - Holdings

TLT Bond SectorsWeight
AAA100.0%
Others0.0%
Below B0.0%
B0.0%
BB0.0%
BBB0.0%
A0.0%
AA0.0%
US Government0.0%

TLT’s Top Bond Sectors are ratings of AAA, Others, Below B, B, and BB at 100.0%, 0.0%, 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.

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Risk Analysis

PFFTLT
Mean Return0.520.63
R-squared9.3968.76
Std. Deviation7.8712.76
Alpha3.45-2.83
Beta0.813.54
Sharpe Ratio0.720.55
Treynor Ratio6.791.82

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

The iShares 20+ Year Treasury Bond ETF (TLT) has a Alpha of -2.83 with a Sharpe Ratio of 0.55 and a Treynor Ratio of 1.82. Its R-squared is 68.76 while TLT’s Beta is 3.54. Furthermore, the fund has a Mean Return of 0.63 and a Standard Deviation of 12.76.

PFF’s Mean Return is 0.11 points lower than that of TLT and its R-squared is 59.37 points lower. With a Standard Deviation of 7.87, PFF is slightly less volatile than TLT. The Alpha and Beta of PFF are 6.28 points higher and 2.73 points lower than TLT’s Alpha and Beta.

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Performance

Annual Returns

PFF vs. TLT - Annual Returns

YearPFFTLT
20207.94%17.92%
201915.62%14.93%
2018-4.77%-2.07%
20178.33%8.92%
20161.26%1.36%
20154.62%-1.65%
201413.45%27.35%
2013-0.59%-13.91%
201218.25%3.25%
2011-2.2%33.6%
201013.96%9.25%

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 2011 was the strongest year for TLT, returning 33.6% on an annual basis. The poorest year for TLT in the last ten years was 2013, with a yield of -13.91%. Most years the iShares 20+ Year Treasury Bond ETF has given investors modest returns, such as in 2012, 2017, and 2010, when gains were 3.25%, 8.92%, and 9.25% respectively.

Portfolio Growth

PFF vs. TLT - Portfolio Growth

FundInitial BalanceFinal BalanceCAGR
PFF$10,000$20,2726.90%
TLT$10,000$23,8099.00%

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 TLT, the end total would have been $23,809. This equates to a $13,809 profit over 11 years and a compound annual growth rate (CAGR) of 9.00%.

PFF’s CAGR is 2.10 percentage points lower than that of TLT and as a result, would have yielded $3,537 less on a $10,000 investment. Thus, PFF performed worse than TLT by 2.10% annually.


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