ETF Filing: Virtus Plans Pref Stock Fund

Filing comes on the heels of the launch of another actively managed preferred securities fund.

ETF.com
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Reviewed by: etf.com Staff
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Edited by: etf.com Staff

A new filing from Virtus outlines the firm’s plan to launch an ETF that will offer an actively managed approach to the preferred stock space. The Virtus InfraCap U.S. Preferred Stock ETF (PFFA), when it launches, will join a bevy of preferred stock ETFs, but it will be one of only a few that use an active management approach.

Preferred securities have been a hot area in the current low-rate environment as investors search for sources of income. The securities occupy a gray area between equities and fixed income.

They trade like stocks, but they also pay dividends. Those holding them are afforded priority over those owning common stock when it comes to the payment of dividends or bankruptcy-related distributions. However, preferred securities are also subordinate to standard fixed income in such scenarios.

Investment Approach

PFFA will target all types of preferred securities issued by companies with market capitalizations of at least $100 million. When selecting holdings, the fund’s managers will take into account the issuing firm’s competitive position, its likelihood of earning a high return on capital, its projected and historical profits, its ability to generate excess cash and its ability to access capital, the prospectus said.

The fund will underweight or exclude entirely those securities trading above their call prices and demonstrating a low or negative yield-to-call, the document noted. It will also be able to use options strategies to generate income and to hedge against various risks, and it can use leverage equal to one-third of its total portfolio.

Earlier in the summer, Principal rolled out the actively managed Principal Spectrum Preferred Securities Active ETF (PREF), which currently has $25 million in assets under management. However, that fund invests solely on $1,000 par securities, which are favored by institutions.

The filing did not include a ticker or expense ratio; however, it indicated the fund will list on the NYSE Arca.

Contact Heather Bell at [email protected].

 

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