Invesco PowerShares has launched the first exchange traded fund in Europe to offer targeted exposure to preferred shares and the attractive income they may provide. The PowerShares Preferred Shares UCITS ETF is also the first fund launch since Invesco acquired ETF specialist Source.:.....
The ETF will trade on the London Stock Exchange and invest in a portfolio of US preferred shares. Although technically equities, preferred shares have fixed dividends and tend to behave more like bonds. With an average yield of over 5% per annum1, preferred shares may be a very interesting income opportunity.
Why preferred shares?
“With interest rates and bond yields at all-time lows, investors have really struggled to generate meaningful income,” explained Nicolas Samaran, Head of Innovative Product Development at Invesco PowerShares. “Preferred shares provide yields comparable to high yield bonds, but from securities issued typically by more well-known companies.”
The ETF’s underlying index has produced a 6.1% annualised return over the past five years, similar to the US high yield market and significantly higher than US Investment Grade bonds2.
Preferred shares can also help diversify a portfolio and, as a result, reduce its volatility. Over the past five years, preferred shares have shown low correlation to both equities and fixed income.
“Over the years, Source and Invesco PowerShares have both established reputations for innovation,” said Mike Paul, Head of Invesco PowerShares (EMEA). “Now that we’ve joined forces, we believe we can drive it forward even more effectively. This fund launch is a good example. It offers clients exposure to a market segment not available through any other European ETF provider, from a manager with 28 years of experience and the support of a team already managing around c$30 billion of assets.”
The ETF will be managed by Senior Portfolio Manager Jeff Kernagis. It will be available in US dollars with an ongoing charge of 0.50% per annum. Dividends will be distributed quarterly.
Mr Paul continued, “While this is the first launch of our combined companies, it’s just the tip of the iceberg. There is much more to come, so keep watching this space.”
1 Yield to maturity of BofA Merrill Lynch Diversified Core Plus Preferred Net Total Return Index, as at 20th September 2017
2 Source: Bloomberg, as at 24th August 2017, comparisons based on iBoxx US High Yield Index and iBoxx US Investment Grade Index. Past performance is not a reliable indicator of future returns