S&P launches Enhanced Yield North American Preferred Index, basis for ETF

Jun 7th, 2012 | By | Category: ETF and Index News

S&P Indices has announced the launch of the S&P Enhanced Yield North American Preferred Index. The index, which tracks 50 of the highest yielding preferred stocks (also known as preference shares) listed on North American stock exchanges, has been licensed to New York-based Global X Funds to serve as the basis for a planned ETF.

S&P launches Enhanced Yield North American Preferred Index, basis for ETF

Preferred stocks are a class of securities that combine the characteristics of debt and common stocks. Issuers of such securities are dominated by financial institutions.

The S&P Enhanced Yield North American Preferred Index is comprised of 50 of the highest yielding US and Canada-traded preferred stocks that meet criteria relating to size, liquidity and exchange listings. The underlying universe for the index is all preferred securities in the S&P/TSX Preferred Share Index and S&P US Preferred Stock Index.

Preferred stocks are a form of hybrid securities that combine the characteristics of debt and common stocks. While their expected volatility and returns fall between those of common stocks and bonds, their yields are typically higher. With low correlations to common stocks and bonds, they can serve as good diversification instruments.

“The S&P Enhanced Yield North American Preferred Index is an important addition to our closely followed family of preferred stock indices,” says Michael Kondas, Associate Director at S&P Indices. “The index fills a need in the industry for a more concentrated basket of preferred stocks that could potentially provide greater yields for investors seeking higher investment income.”

”We are very excited to be launching an ETF based upon the S&P Enhanced High Yield North American Preferred Index,” says Bruno del Ama, CEO at Global X Funds. “S&P Indices is an innovator and leading provider of preferred stock indices, and this index expands their offerings to an important segment of the preferred market.”

The S&P Enhanced Yield North American Preferred Index includes floating and fixed rate preferreds, cumulative and non-cumulative preferreds, preferred stocks with a callable or conversion feature and trust preferreds. To be eligible for inclusion, the preferreds must have a total market capitalisation of more than US$250 million and have a three-month average daily traded value of US$ 1 million.

Currently, the top five constituents are preferred securities issued by Credit Suisse, AIG, Wells Fargo, Aegon and Prudential. Indeed, the financial sector as a whole makes up almost 89% of the index.

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