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Global X Funds launches Global X US Preferred ETF


Global X Funds, a New York-based provider of exchange traded funds (ETFs), has launched the Global X US Preferred ETF (PFFD).

Tracking the BofA Merrill Lynch Diversified Core US Preferred Securities Index, the fund provides investors with broad exposure to the income-oriented US preferred asset class. PFFD’s expense ratio is 0.23 per cent, while the category average for ‘Fixed Income: US – Corporate Preferred Stock’ was 0.48 per cent as of 8/31/2017.
Preferred stocks are considered hybrid securities that exhibit both fixed-income and equity-like characteristics. They can play an important role in potentially improving a portfolio’s yield, which may be particularly appealing to investors during this persistently low interest rate environment. Preferreds are junior to bonds on a firm’s capital structure, therefore often resulting in higher yields than similar fixed income securities. In addition, the income received from preferred stocks is often classified as qualified dividend income, which is taxed at a lower rate than the income received from corporate bonds, which is usually taxed as ordinary income.
“Investors continue to contend with low interest rates and narrow credit spreads, making sufficient income difficult to come by. Preferreds, however, currently have attractive yields that sets them apart from other traditional income-generating asset classes like investment grade bonds and REITs,” says Jay Jacobs, director of research at Global X.
“We are excited to launch PFFD, offering investors a low cost option for accessing the preferred market. The asset class’s attractive yield potential, coupled with potential tax benefits make preferreds an important consideration for an income-oriented portfolio,” adds Jon Maier, chief investment officer at Global X.
PFFD’s underlying index includes fixed, floating and variable-rate preferred securities with a minimum amount outstanding of USD100 million. The index is market-capitalisation weighted, with a 10 per cent cap for individual issuers. PFFD is Global X’s twelfth ETF in its income suite and joins the Global X SuperIncome Preferred ETF (SPFF) in the Global X’s family of preferred funds.

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