Invesco cross-lists PowerShares Preferred Shares ETF on SIX

Nov 21st, 2017 | By | Category: Fixed Income

Invesco has cross-listed the PowerShares Preferred Shares UCITS ETF (PRFD SW) on SIX Swiss Exchange. PRFD provides exposure to fixed rate US dollar-denominated preferred securities issued in the US domestic market.

Invesco cross-lists PowerShares Preferred Shares ETF on SIX

Preferred securities may offer investors higher yields compared to investing in corporate debt markets.

Preferred securities tend to have both equity- and bond-like characteristics, falling between company debt and common stock in the seniority of a firm’s capital structure. They generally pay a regular fixed or floating dividend, making the security’s price sensitive to changes in interest rates. Although dividends may be suspended by the company’s board without the risk of default, some preferred shares may be cumulative in that unpaid amounts are accrued until the dividend is reinstated.

The security’s equity-like nature characterises it as a perpetual investment, although many preferred securities do have an embedded callable feature, exercisable after a specified time period. This tends to lead to a cap on the potential appreciation of the security’s price.

While preferred securities may offer relatively high yields, the various product structures within the preferred share market can be confusing to investors.

Underlying the fund is the BoAML Diversified Core Plus Fixed Rate Pref Sec NTR Index. Index constituents are capitalisation-weighted subject to a 10% issuer cap. Securities must be rated at least B3 based on the average of the three leading rating agencies, and must have an investment-grade country risk profile.  The fund and the index are rebalanced and reconstituted on a monthly basis.

PRFD is currently primarily exposed to issuers domiciled in North America, constituting over 95% of the index weight, while a small percentage of index firms are from Europe. Financial sector firms dominate the index with over 80% of the total weight; the next largest exposures are to firms from the utilities (7.9%) and communications (5.7%) sectors.

Almost three quarters of the index weight is made up of issues rated either BBB, BBB-, or BB+, with this weight spread relatively equally amongst the three categories. Less than 5% of the index weight is in issues rated A- or above.

PRFD trades in US dollars on SIX and has a total expense ratio (TER) of 0.50%. The fund was initially rolled out on London Stock Exchange at the start of October, where it also trades in US dollars (see: “Invesco PowerShares launches Europe’s first preferred shares ETF”). It has also been listed on Borsa Italiana where it trades in euros. Since its launch, the fund has accumulated assets under management of approximately $49 million across all three listings.

PRFD is the first European-listed ETF to offer investors access to the preferred share market. The lack of such an ETF up to now has been somewhat of a mystery considering their popularity in the US with funds such as the Nasdaq-listed $18 billion iShares US Preferred Stock ETF (PFF US) and the NYSE-listed $5bn PowerShares Preferred Portfolio ETF (PGX US) commanding significant AUM.

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