Global X launches preferred stock ETF

Sep 14th, 2017 | By | Category: Equities

Global X has launched the Global X US Preferred ETF (BATS: PFFD). The fund gives investors broad exposure to the income-orientated US preferred asset class by tracking the BofA Merrill Lynch Diversified Core US Preferred Securities Index.

Global X launches preferred stock ETF

Jay Jacobs, director of research of Global X.

Jay Jacobs, director of research at Global X, commented: “Preferreds have attractive yields that set them apart from other traditional income-generating asset classes like investment grade bonds and REITs.”

Preferred stocks are considered hybrid securities that exhibit both fixed-income and equity like characteristics. They can play an important role in potentially improving a portfolio’s yield, which Global X hopes will prove particularly appealing to investors during the current low rate environment.

Preferred stock is junior to bonds in a firm’s capital structure, therefore often resulting in higher yields than similar fixed income securities. In addition, the income received from preferred stock is often classified as qualified dividend income, which is taxed at a lower rate than the income received from corporate bonds, which is usually taxed as ordinary income.

PFFD’s underlying index currently has 253 holdings including fixed, floating and variable-rate preferred securities with a minimum amount outstanding of $100 million. The index is market-capitalization weighted, with a 10% cap for individual issuers.

The majority of the index is made up of securities rated BBB+ to BBB- (56.5%) and BB+ to BB- (37.0%). The current largest individual holding is Wells Fargo (3.3%), followed by HSBC (2.6%) and Bank of America (2.5%).

Jon Maier, chief investment officer at Global X, said: “We are excited to launch PFFD, offering investors a low-cost option for accessing the preferred market. The attractive yield potential, coupled with potential tax benefits make preferreds an important consideration for an income oriented portfolio.”

The ETF pays dividends monthly and has a total expense ratio (TER) of 0.23%.

PFFD is Global X’s twelfth ETF in its income suite and joins the Global X SuperIncome Preferred ETF (NYSE Arca: SPFF) in the Global X’s family of preferred funds. SPFF was launched in July 2012 and currently has assets under management (AUM) of $246m and a TER of 0.58%.

The largest fund from Global X is the Global X SuperDividend ETF (NYSE Arca: SDIV) which has $997m in AUM and also has a TER of 0.58%.

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