Preferred-stock exchange-traded funds are hot, and the SuperIncome Preferred ETF (SPFF) from Global X Funds is helping to heat up the asset class.
With the average corporate bond yields at an all-time low of 3.2%, investors are looking for ways to earn income. Preferred shares are a hybrid fixed-income and equity security and are known for their reliable dividend payments and higher yields. Currently, they typically yield about 6%.
SPFF, which was launched in mid-July, is the first to track 50 of the highest-yielding preferred securities in North America as defined by the S&P 500. More importantly, it has about an 8% yield.
These preferreds will help investors to diversify their income strategy, said Global X Funds chief executive Bruno del Ama.
“In general, dividends and income are something that people are very interested in this environment because of the low interest rates,” he said. “There are just not a lot of opportunities to get income in a fixed-income space.”
Such yields come with risks, however.
Because financial issuers make up 74% of the portfolio, there is a credit risk, and investors must depend on these financial institutions not to fail.
Securities can also be “called.”
This means that the issue can buy out shareholders at par value, though according to Mr. del Ama, a security's yield will come out if called and will be replaced by the next security that comes into the index.
SPFF follows two other ETFs from Global X, including the SuperDividend ETF that provides exposure to the top 100 dividend-paying companies worldwide, and the MLP ETF, which allows investors to track the master limited partnership industry.
This suite of ETFs might just be the solution for the growing demand for income, especially among those who are looking toward retirement, Robert Curry, a senior vice president, wealth adviser and portfolio management director at Morgan Stanley Smith Barney LLC, said during a speech before the NYSE's opening bell Monday.
“A lot of people in their early 60s and mid-60s, looking at retirement, don't really have options to do that in terms of fixed income,” he said. “Based on the language of the Fed, there is little chance for an increase in short-term interest rates in the foreseeable future.”
