Not Just Treasuries: Preferred ETFs Benefit as Rates Fall

The Global X SuperIncome Preferred ETF (NYSEArca: SPFF) is closing in on its second anniversary with $103.6 million in assets under management, nearly a third of which have come into the ETF this year. Nearly 69% of SPFF’s holdings hail from the financial services sector and the ETF features a 30-day SEC yield of 6.54%.

The environment for preferred ETFs has also turned favorably enough to sustain some new entrants to the field.

The PowerShares Variable Rate Preferred Portfolio Fund (NYSEArca: VRP) debuted on May 2 and already has $12.5 million in assets.

More important than size are the advantages VRP offers investors, namely the ability to stay involved with preferred even rates rise. VRP could prove attractive to income investors when interest rates rise because most preferred shares are either perpetual or sport long durations, making the issues sensitive to higher rates. [New Variable Rate Preferred ETF Debuts]

Variable-rate preferreds usually carry lower interest rates than fixed-rate preferreds of comparable credit quality. However, the trade-off there is an ETF such as VRP should be less sensitive to interest rate changes.

iShares U.S. Preferred Stock ETF

Tom Lydon’s clients own shares of TLT.