Van Eck Plans Ex-Financials Preferred ETF

March 15, 2012

 

 

Van Eck Global, the New York-based fund provider behind the Market Vectors ETFs, filed paperwork with U.S. regulators to market a preferred stock ETF that excludes the financial sector, serving up yet another tool for investors looking to hedge against volatility.

The Market Vectors Preferred Securities Ex-Financials ETF will track a proprietary index comprising U.S.-listed convertible and nonconvertible preferred stocks from various industry sectors excluding financials. The fund will even include REITs, which the company says are not considered “financial,” according to the filing.

Van Eck’s portfolio would join heavy-hitters in the space such as the iShares S&P U.S. Preferred Stock Index Fund (NYSEArca: PFF), which is the market’s largest preferred stock ETF today, with $8.36 billion in assets; and the $1.57 billion PowerShares Preferred Portfolio (NYSEArca: PGX). But Van Eck’s fund is the first to exclude financials completely.

Both PFF and PGX, in fact, comprise financial sector preferred stocks almost entirely. PFF allocates 47 percent of the portfolio to “diversified financials” and another 25 percent to bank stocks, according to information on iShares’ website; while PowerShares’ PGX, which is linked to a BofA Merrill Lynch index, has more than 88 percent of its portfolio tied to the financial sector.

Preferred stocks are really more like bonds, and their payouts come ahead of common stock dividends. But preferred shares don’t carry voting rights, and they fall below bonds on a company’s capital structure, which means preferred shareholders are more like common stockholders in a bankruptcy.

That said, income-seeking investors have embraced preferred stocks for their steady, reliable dividend payments, especially in times of volatile market action.

Van Eck’s fund will only include preferred stocks with a minimum par value of $250 million or a minimum of 10 million shares outstanding. While they may have fixed or floating dividends or coupons, they must be dollar denominated and be listed either on the NYSE, its electronic platform Arca or on the Nasdaq board.

The company didn’t disclose in the filing a ticker or planned fees for the ETF.

 

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