Solactive US preferred share indices licensed to BMO for ETF creation

Feb 13th, 2017 | By | Category: ETF and Index News

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Solactive has launched the CAD-denominated Solactive US Preferred Share Select Index, along with a currency-hedged version relative to the Canadian dollar, tracking the performance of higher dividend paying US-listed preferred shares.

New Solactive US preferred share indices licensed to BMO for ETF creation

Henning Kahre, Head of Research, Solactive AG.

To be eligible for inclusion, issues must meet a minimum market capitalization of $100 million and a minimum monthly six month traded volume of 250,000 shares.

To boost the income profile of the index, a smart beta weighting scheme is employed based on the dividend yield of index components with a 3% cap per issuer.

Henning Kahre, Head of Research, Solactive AG, commented: “The Solactive US Preferred Shares Select Indices follow an income oriented strategy applied to preferred shares listed in the US. Products linked to these indices allow investors to gain diversified and cost-efficient exposure to high-rated US preferred shares with an above average distribution yield.”

Preferred shares have both equity- and bond-like characteristics, falling between company debt and common stock in the seniority of the firm’s capital structure. They generally pay a regular fixed or floating dividend, making the security’s price sensitive to changes in interest rates. Dividends may be suspended by the company’s board without the risk of default under strenuous business conditions.

While the equity-like nature of the security characterises it as a perpetual investment, most preferred shares 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.

The smart beta indices have been licensed to BMO Asset Management to act as the underlying references for the BMO US Preferred Share Index ETF (ZUP).

This ETF is now available on the Toronto Stock Exchange in unhedged, hedged (Ticker: ZHP) and USD (Ticker: ZUP-U) trading lines to allow investors to choose their currency exposure.

It has a management expense ratio of 0.50%.

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