A New Yield-Generating, Institutional-Level ETF Play

First Trust launched an actively managed preferred securities exchange traded fund that focuses on preferred securities issued mainly to institutional-level investors.

On Wednesday, First Trust rolled out the actively managed First Trust Institutional Preferred Securities and Income ETF (NYSEArca: FPEI).  FPEI has a 0.85% expense ratio.

The active ETF will be managed by Scott T. Fleming, President and Chief Investment Officer of Stonebridge Advisors LLC, Robert Wolf, Senior Vice President and Senior Portfolio Manager of Stonebridge Advisors LLC, and Danielle Salters, Portfolio Manager and Credit Analyst at Stonebridge Advisors LLC.

The Institutional Preferred Securities and Income ETF tries to generate total return and provide current income by investing in institutional preferred securities and income-producing debt securities.

Preferred securities are a type of equity security that have seniority over common stock in the payment of distributions and the liquidation of a company’s assets in case of bankruptcy, but they are typically junior to all forms of the company’s debt, including both senior and subordinated debt.

Institutional preferred securities are targeted to institutional, as opposed to retail, investors. They are generally traded over-the-counter and may also be known as “$1,000 par preferred securities” and are issued in large institutional lot sizes. Institutional preferreds are often financial companies.