Invesco introduces euro-hedged share class for US preferred shares ETF

Apr 23rd, 2018 | By | Category: Alternatives / Multi-Asset

Invesco has introduced a euro-hedged share class of its recently listed PowerShares Preferred Shares UCITS ETF (PRFD LN).

Invesco launches new share class for its preferred shares ETF

The new share class mitigates currency risk relative to the euro.

PRFD was launched in October 2017 and now has assets under management of $188m.

The new share class is trading under PowerShares Preferred Shares UCITS ETF EUR Hgd Dist (PDSE GY) and listed on Xetra and Börse Frankfurt.

The share class includes a hedging strategy to hedge the exchange rate risk between the US dollar and the fund’s trading currency, the euro.

PRFD has a total expense ratio (TER) of 50bps, while the new euro-hedged share class (PDSE) has a TER of 55bps.

The fund tracks the BofA Merrill Lynch Diversified Core Plus Fixed Rate Preferred Securities Index, providing investors with exposure to preferred shares issued in the US market.

These preferred shares are fixed-rate, hybrid capital instruments, denominated in US dollars. Securities must have a minimum rating of B3 based on an average of three ratings agencies: Moody’s, S&P, and Fitch, and must have an investment-grade country risk profile. US firms make up the majority of the index exposure at over 80%, while the next largest country exposures are the UK (8.7%) and Germany (3.1%).

Index constituents are cap-weighted subject to a 10% issuer cap. Additionally, no more than 40% of the index can be comprised of issuers that individually account for more than 5% of the index.

Although technically equities, preferred shares have many bond-like qualities (for example, they are issued with fixed dividends). Preferred shares have exhibited a low correlation with both equities and bonds over the past five years, potentially making them an attractive option for investors seeking to reduce portfolio volatility.

The index is currently (as at 16 April 2018) most exposed to financials (73.7%), followed by real estate (8.7%) and utilities (8.3%).

It generated strong performance during 2017, returning 9.1%, but has since slipped 2.8% year-to-date.

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