What is the difference between Corporate Bonds and Corporate Debt Funds?

Question

For example I can buy shares of the exchange traded fund: IShares S&P US Preferrd Stock Index Fund (PFF), which is classified as a Corporate Debt Funds BBB-Rated.

Is a corporate debt fund like PFF a collection of corporate bonds?

Thanks !

Answer 1

Sort of but not exactly.  It is a collection of preferred stock, which are sort of a debt and in fact many times classified as debt but are further down on the food chain when it comes to bankruptcy proceedings than corporate bonds. Generally, preferred stock holder get nothing whereas corporate bond holders might bet a pertinence.  Another difference is the tax consequences.  A portion of the income from this fund will be taxed at the current preferred rate whereas bond interest is not.