Principal Launches 'PQDI' ETF to Help Taxpayers Boost After-Tax Income

Today, Principal Global Investors launched the Principal Spectrum Tax-Advantaged Dividend Active ETF (PQDI). PQDI is the first ETF in the market specifically designed to offer investors access to qualified dividend income by investing in securities from all three sectors of the global U.S. dollar capital securities market. The fund is designed to help U.S. taxpayers boost after-tax income by targeting exposure to qualified dividends.

In changing market environments, 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.

Matthew Raynor, Managing Director Strategic Accounts, Exchange Traded Fund Sales at Principal Global Investors, told ETF Trends that they are thrilled to be the first provider in the U.S. to offer an actively managed preferred portfolio that concentrates specifically on qualified dividend securities.

“We built this strategy simply with our clients voices behind it,” Raynor told ETF Trends.

Raynor shared the following thoughts on why he thinks this solution makes so much sense:

  • Income – The fed is “rate bound” making it more difficult than even to find yield without taking on significant risk. The taxable equivalent yield of PQDI will be hard to overlook as the majority of portfolios will be subject to cap gains rates on distributions, versus ordinary income rates, due to unique securities qualifications that Spectrum screens for specifically.
  • Growing Tax Impact – Concern for greater tax impact moving forward has many investors concentrating more closely on “what you keep”, versus “what you get.”
  • Diversification – The portfolio allows Spectrum to take advantage of all three buckets of preferred and capital securities. Investing in 25s, 1000s, and Coco’s, allow for exceptional diversification benefits and potential yield enhancement.
  • Experience – 30 years, and 20 billion in preferred securities in tow, one of the nation’s most sought after managers is at the wheel making critical decisions on security selection and allocation
  • Price – 60bps is an extremely attractive entry point for an actively managed preferred portfolio.

Kamal Bhatia, President and CEO, Principal Funds, said this ‘first mover’ active ETF represents an improved alternative to the roughly $25B passive preferred securities ETF market, concentrated in $25 par preferreds, and aims to provide tax-advantaged income to U.S. taxpayers.

“We know our advisory clients are craving long term opportunities that generate tax-efficient spread income with a substantial value from actively managing in a permanently altered financial environment,” Bhatia said. “We built this strategy simply with their voices behind it.”

Investors are increasingly looking to ETFs for active and fixed income products. PQDI is managed by Spectrum Asset Management, a leading preferred and capital securities investment team within Principal. The fund is the second ETF managed by Spectrum, in addition to the Principal Spectrum Preferred Securities Active ETF (PREF), which launched in 2017.

PQDI has the objective of providing income and will invest in a diversified portfolio of USD denominated securities from all major sectors of the global U.S. dollar preferred and capital securities market1. The fund will focus on income from dividends eligible for beneficial tax treatment, but it also invests in securities that are not eligible for such treatment. In particular, PQDI will seek securities that, at the time of issuance, are eligible to pay dividends that qualify for reduced U.S. federal income tax rates for “qualified dividend income” (“QDI”)2 or for the deduction of up to 20% of qualified real estate investment trust (“REIT”) dividends (“QRD”).

Principal has more than $2.7 billion in ETF assets under management globally, and Principal Global Investors had $437 billion in assets under management as of 03/31/20.

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