Real estate investment trusts (REITs) dealt some rough hands to income investors in the first half of the year, but the Principal Spectrum Tax-Advantaged Dividend Active ETF (PQDI) can prepare investors for a REIT rebound.

The newly minted PQDI isn’t a dedicated REIT fund, which means lower risk than comes with a dedicated sector ETF. Additionally, the Principal ETF is actively managed, so it can steer clear of possible dividend offenders.

PQDI components include, without limitation, preferred securities and capital securities of U.S. and non-U.S. issuers. The fund invests significantly in securities that, at the time of issuance, are eligible to pay dividends that qualify for favorable U.S. federal income tax treatment, such as dividends treated as qualified dividend income (QDI) or qualified dividends from real estate investment trusts (REITS).

“Real estate investing has suffered amid the coronavirus pandemic as offices, retailers, and healthcare facilities struggle from the economic fallout,” reports Abby Schulz for Barron’s. “But not all sectors of real estate are hobbled, and Citi Private Bank believes investors can find value in the sector. In June, the bank’s investment committee made a tactical shift toward real estate investment trusts, or REITs, overweighting it by 2%.”

Better Alternative

PQDI is the first of its kind—offering investors access to qualified dividend income via all three sectors of the global U.S. dollar capital securities market. As mentioned, PQDI targets qualified dividends, thereby helping U.S. taxpayers boost after-tax income.

“While 2% is far from a huge move (and far from the only tactical shift the bank has made during the pandemic), the overweighting reflects Citi’s position that, in general, REITs are undervalued and stand to gain during a post-Covid-19 recovery, and that there are several resilient sectors in the market,” according to Barron’s.

Fixed income investors know that yield is hard to come across these days—unless investors are willing to take on more risk by accepting more duration in safe haven government debt, opting for high yield, or looking at opportunities overseas—to name a few. On the other hand, PQDI offers an alternative to those prosaic income-generating assets.

“Preferred and capital securities have historically delivered attractive risk-adjusted returns, and active management can potentially enhance returns by selecting higher-quality and improving credits and avoiding speculative risks. Investors are seeking new innovative solutions to boost after-tax income, especially as interest rates remain low. PQDI exposure to preferred securities aims to provide tax-advantaged income as U.S. investors build and distribute wealth,” according to Principal.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.