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. 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. [Falling Rates Lift Preferred ETFs]
The new ETF traded $1 million notional in its first day of trading and has since proven that was no fluke, amassing $17.6 million since its May 1 debut.
Of VRP’s 86 holdings, 84% are rated BBB or BB by Standard & Poor’s. The new ETF has a 30-day yield of 4.62%. That is about 150 basis points lower than 30-day SEC yield on PGX, but 200 basis points above 10-year Treasuries.
PowerShares Variable Rate Preferred Portfolio Fund Credit Quality
Table Courtesy: PowerShares