Global X, the New York-based exchange-traded fund firm known for
its niche fund strategies and focus on emerging markets, today
rolled out an ETF focused on preferred securities, the latest sign
of the ETF industry's focus on bringing to market income-targeting
investment themes.
The Global X SuperIncome Preferred ETF (NYSEArca:SPFF) will
track the S&P High Yield Preferred Stock Index, and focus on
U.S.-listed preferred stocks, which pay a set dividend and take
precedence over common stocks in the event of a company's
liquidation.
SPFF is the latest ETF to target preferred securities. In fact,
Van Eck today is rolling out a preferred ETF that screens out
financial companies from the fund. Such funds have become quite
popular at a time of increased market volatility and when interest
rates are at near all-time lows.
Funds like the iShares S&P U.S. Preferred Stock Index Fund
(NYSEArca:PFF)-one of the market's largest preferred stock ETF,
with $9.3 billion in assets-and the $1.8 billion PowerShares
Preferred Portfolio (NYSEArca:PGX) speak to that investor
demand.
Preferred stock ETFs are essentially fixed-income strategies
because of the securities' hybrid nature:They behave both as equity
and as debt. Their appeal is that preferred stocks are known for
their reliable, steady dividend payments. What's more, they take
precedence over common stocks in a company's capital structure, and
they usually serve up higher income potential than common
stocks.
The new Global X fund's index tracks the underlying performance
of the highest-yielding preferred securities in the U.S., and had
50 constituents as of March 31. The index uses a representative
sampling strategy, meaning the fund typically doesn't hold all the
securities of the index, according to a recent prospectus Global X
filed detailing the fund.
The index can include different categories of preferred stock,
such as floating and fixed-rate preferreds, perpetual preferred
stock, trust preferred securities, cumulative and noncumulative
preferreds or preferred stocks with a callable or conversion
feature.
The fund will come with an annual expense ratio of 0.58 percent,
the prospectus said. That's pricier than PFF and PGX, which have
expense ratios of 0.48 percent and 0.50 percent, respectively.
It's also more expensive than a fund Van Eck is bringing to
market today. The Market Vectors Preferred Securities ex Financials
ETF (NYSEArca:PFXF), which will steer clear of preferred securities
issued by companies in the financial sector, comes in at 0.40
percent, according to a prospectus Van Eck filed detailing the
fund.
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