Today Global X rolled out an ETF targeting the preferred securities space at a price point lower than any other exchange-traded product in the space. The Global X U.S. Preferred ETF (PFFD) will track the BofA Merrill Lynch Diversified Core U.S. Preferred Securities Index.
PFFD comes with an expense ratio of 0.23% and lists on the Bats exchange. Bats is a subsidiary of ETF.com’s parent company, CBOE.
The fund’s index covers a broad range of U.S.-listed preferred stock, including floating-, variable- and fixed-rate preferred securities, cumulative and noncumulative preferred securities and trust preferred securities, the prospectus said. Eligible securities must meet minimum thresholds in terms of price, liquidity and maturity, as well as have at least $100 million outstanding, among other requirements.
The index’s components are weighted by the combination of their amount outstanding, their pricing and accrued interest—essentially the equivalent of market-capitalization weighting. Individual issuers are capped at 10% of the index at each quarterly rebalancing, according to the prospectus.
PFFD’s benchmark can include components of any size, and tends to concentrate its holdings in the financials, real estate, telecommunications and utility sectors.
PFFD could steal some real market share from existing funds if it takes off. The largest preferred stock ETF, the $18.5 billion iShares U.S. Preferred Stock ETF (PFF), tracks a similar index, but costs more than twice as much, at an expense ratio of 0.47%.
The second-largest fund in the space, the $5.3 billion PowerShares Preferred Portfolio (PGX) only tracks fixed-rate preferred securities, and it costs even more: 0.50%. In fact, PFFD is 18 basis points cheaper than the cheapest fund in the space, the VanEck Vectors Preferred Securities ex Financials ETF (PFXF).
Contact Heather Bell at [email protected]