Fewer jobs created in August caused yields to fall flat, but that doesn’t mean fixed income investors have to starve when it comes to yield with ETFs like the Global X SuperIncome Preferred ETF (SPFF).
Thanks to the Delta variant, a rising number of COVID cases certainly played a hand in the disappointing data. A scramble for safe-haven bonds is pushing yields lower as prices and yields are inversely correlated.
“U.S. companies created much fewer jobs than expected in August as the Covid resurgence coincided with cutbacks in hiring, according to a report Wednesday from payroll services firm ADP,” a CNBC article reported. “Private payrolls rose just 374,000 for the month, well below the Dow Jones estimate of 600,000 though above July’s 326,000, which was revised downward slightly from initial 330,000 reading.”
The latest data came ahead of the nonfarm payroll report, where economists forecast a strong month in August. However, if the latest ADP data indicates what’s to come, they might be disappointed.
Should this continue to spur a move to safe-haven government debt, yields could get even lower. However, ETFs like SPFF can counteract that with dividends from preferred securities.
High Monthly Income and Tax Advantages
SPFF seeks investment results that generally correspond to the price and yield performance, before fees and expenses, of the S&P Enhanced Yield North American Preferred Stock Index (“underlying index”). The fund will invest at least 80% of its total assets in the securities of the underlying index and in American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”) based on the securities in the underlying index.
The underlying index tracks the performance of the highest-yielding preferred securities in the United States and Canada. SPFF’s expense ratio comes in at 0.58%, and as of August 31, the fund has a 30-day SEC yield of 5.24%, a 12-month trailing yield of 5.79%, and a distribution yield of 5.53%.
SPFF gives investors:
- High Income Potential: SPFF invests in 50 of the highest yielding preferreds in the U.S. and Canada, potentially increasing a portfolio’s yield.
- Monthly Distributions: The fund makes distributions on a monthly basis and has made distributions each month for over 8 years.
- Preferential Tax Treatment: Preferred securities may also provide an income advantage. Income from preferred stocks may be treated as qualified dividends (QDI) rather than as regular interest income.
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