Global X Funds rolled out a cheap U.S. preferred securities-related ETF to help fixed-income investors diversify a yield-focused portfolio.
On Wednesday, Global X launched the Global X U.S. Preferred ETF (BATS: PFFD). PFFD comes with a 0.23% expense ratio, the cheapest of any ETF strategy in this category.
“Investors continue to contend with low interest rates and narrow credit spreads, making sufficient income difficult to come by. Preferreds, however, currently have attractive yields that sets them apart from other traditional income-generating asset classes like investment grade bonds and REITs,” Jay Jacobs, director of research at Global X, said in a note.
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. Additionally, preferred stocks issue dividends on a regular basis, but investors don’t usually enjoy capital appreciation on par with common shares.
Income investors have looked to preferred stock ETFs in their portfolios for a number of reason. For instance, the asset class offers stable dividends, does not come with taxes on qualified dividends for those that fall into the 15% tax bracket or lower, is senior to common stocks in the event liquidation occurs, is less volatile than bonds and provides dividend payments before common shareholders.