This ETF Offers Tax-Advantaged Dividends in Low Yield Environment

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. However, there are other options, such as the Principal Spectrum Tax-Advantaged Dividend Active ETF (PQDI).

PQDI seeks to provide current income. Under normal circumstances, the fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in dividend-paying securities at the time of purchase.

Such securities 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).

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.

According to a press release for PQDI, “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.”

“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,” said Kamal Bhatia, President and CEO, Principal Funds, in the press release. “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. We built this strategy simply with their voices behind it.”

Key features of the fund:

  • Tax-advantaged income: targeted exposure to qualified dividends designed to help U.S. taxpayers boost their after-tax income
  • A focus on quality: selecting higher-quality preferred and capital securities with improving credits and seeking to avoid speculative risks may deliver attractive risk-adjusted returns
  • Active management expertise: spectrum has a 30-year history analyzing, managing, and pricing complex security structures across a variety of credit, interest rate, and regulatory conditions

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