Smart Beta Preferred Stock ETF Filed

May 14, 2018

ETF issuer IndexIQ has filed for an ETF that looks to focus on low-volatility preferred securities. The IQ  S&P U.S. Preferred Stock Low Volatility High Dividend ETF will track an index from S&P Dow Jones Indices.

The fund’s underlying benchmark is derived from the broad S&P U.S. Preferred Stock Index, which covers a wide range of preferred securities. Those components are ranked based on their volatility, with the lowest-volatility stocks at the top of the ranking and the highest ones at the bottom.

The fund’s index selects the top 75% from that ranked list, and then ranks those securities based on their dividend yield. The top 50% of the remaining preferred stocks are selected based on indicated dividend yield, which is also used to determine their weights in the fund index, the prospectus says.

The document also notes that individual issuer weights are capped at 5% of the index and that the index normally includes 70 to 120 securities, with rebalances scheduled quarterly.  

Straddling The Divide

Preferred stocks straddle the divide between fixed income and equities, with investors paid a fixed dividend that takes priority over dividends paid to stockholders. In the event of bankruptcy, preferred stock investors take precedence over common stockholders, but not bondholders.

In 2017, IndexIQ rolled out the complementary IQ S&P High Yield Low Volatility Bond ETF (HYLV), which currently has nearly $90 million in assets under management.

The new filing did not include a ticker, expense ratio or listing exchange.

Contact Heather Bell at [email protected]

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