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.
Our annual fixed-income conference is coming up in a little more than a week and I can’t wait.
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