Infrastructure Capital Advisors has partnered with Virtus ETF Solutions to launch the first exchange traded fund that specifically targets high yielding liquid preferred securities issued by real estate investment trusts.
On Wednesday, Infrastructure Capital Advisors rolled out the InfraCap REIT Preferred ETF (NYSEArca: PFFR). PFFR has a 0.45% expense ratio.
“PFFR is one of the newest products to overlap the newly added 11th sector in the S&P 500 and allows investors to invest in the real estate industry without having to select individual companies,” Jay D. Hatfield, Co-founder and President of InfraCap, said in a note. “We also believe it will be extremely attractive to investor’s looking for income in a yield-stretched market.”
The new ETF will try to reflect the performance of the Indxx REIT Preferred Stock Index, which is comprised of preferred securities listed on U.S. exchanges that are issued by REITs.
Preferred stocks are a type of hybrid security that show bond- and equity-like characteristics. The shares are issued by financial institutions, utilities and telecom companies, among others. Within the securities hierarchy, preferreds are senior to common stocks but junior to corporate bonds. While preferred securities represent ownership interest in a company, preferred stockholders usually have no voting rites with respect to corporate matters of the issuer, but preferred securities have rights and characteristics similar to debt instruments. Additionally, preferred stocks issue dividends on a regular basis, but investors don’t usually enjoy capital appreciation on par with common shares.
REITs are securities that trade like a stock and invest in real estate directly through property ownership or mortgages. Consequently, revenue are mainly generated through rents or interest on mortgage loans. To qualify for special tax considerations, the asset also distributes the majority of income, about 90% of taxable profits, to investors as dividends, and receive at least 75% of that income from rents, mortgages and sales of property.
To be included in PFFR’s underlying index, components must be a prefrred security from a U.S. REIT with $75 million or more in market capitalization, an average monthly trading volume of 250,000 shares or more for 6 months and a yield to worst of 3% or more.
The fund will include REITs that involved in mortgage, office properties, hotels, healthcare, shopping centers and others.
Top holdings include VEREIT Inc 10.9%, WellTower Inc 10.1%, Alexandria Real Estate 6.2%, Felcor Lodging Trust 6.0% and National Retail Properties 5.3%.
As of December 31, 2016, the underlying index showed a 30-day SEC yield of 6.77% and an average yield-to-worst of 6.66%.
For more information on new fund products, visit our new ETFs category.