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A New Professional Way To Play Preferreds

August 25, 2017 11:50 am
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With U.S. interest rates still near historic lows and other major developed markets sporting even more piddly sovereign debt yields, income investors continue embracing unique, high-yield asset classes such as preferred stocks.

The universe of preferred exchange-traded funds grew Thursday with the debut of the First Trust Institutional Preferred Securities and Income ETF (NYSE:FPEI). FPEI joins the First Trust Preferred Securities and Income ETF (NYSE:FPE) as the preferred ETFs in the First Trust stable. The First Trust Preferred Securities and Income ETF debuted over four years ago and is one of the largest preferred stock ETFs with more than $2.6 billion in assets under management.

The new FPEI is an actively managed ETF, adding to First Trust's extensive lineup of such funds that span asset classes ranging from preferreds, master limited partnerships and municipal bonds. FPEI's “investment objective is to seek total return and to provide current income. Under normal market conditions, the Fund invests at least 80% of its net assets (including investment borrowings) in institutional preferred securities and income-producing debt securities,” according to First Trust.

More On The New FPEI

FPEI is managed by Scott T. Fleming, president and chief investment officer of Stonebridge Advisors LLC, Robert Wolf, senior vice president and senior portfolio manager of Stonebridge Advisors, and Danielle Salters, portfolio manager and credit analyst at Stonebridge Advisors.

“The new fund, FPEI, will be a pure play on the institutional preferred securities market, which is not easily accessible to retail investors and that we believe offers great value in the current market environment from both an income and relative value standpoint,” said Wolf in a statement.

“Institutional preferred securities are targeted to institutional, as opposed to retail, investors,” according to ETF Trends. “They are generally traded over-the-counter and may also be known as '$1,000 par preferred securities' and are issued in large institutional lot sizes. Institutional preferreds are often financial companies.”

Important Details

FPEI holds 29 institutional preferred securities. Issues from banks account for almost a third of the new ETF's roster while energy and capital markets firms combine for over 21 percent. Eight countries are represented in FPEI with the U.S. commanding a weight of 51.5 percent.

FPEI charges 0.85 percent per year, or $85 on a $10,000 investment, making it one of the pricier preferred ETFs on the market today.

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