Fight low returns with preferred ETFs, “VRB”
Maximum return in this low rate environment is difficult when rates are at the discretion of the Federal Reserve, but there are solid options for investors, including the Invesco Preferred Floating Rate ETF (VRB).
It is one thing to seek a higher return, but it is quite another to get quality exposure. This is where Preferred Securities become a preferred option for both and more.
“Overall, the universe of preferred securities represents a fixed income asset class of approximately $ 850 billion, ”noted an Invesco analysis. “Typically, investors choose preferred securities for their relatively high income rates, quality and good liquidity. Preferences can offer attractive and modest total return potential correlations with other bond asset classes.
The VRP is based on the ICE Variable Rate Preferred & Hybrid Securities (Index). The ETF will generally invest at least 90% of its total assets in preferred fixed rate securities in the US market by financial companies.
The Index is designed to track the performance of lower quality floating rate and floating rate US dollar preferred stocks, as well as certain types of hybrid securities determined by the index provider, comparable to preferred stocks, which are issued by companies in the US market. The fund does not buy all the securities in the index; instead, the fund uses a “sampling” methodology to seek to achieve its investment objective.
Rate uncertainty calls for a preferred ETF
The Federal Reserve recently decided to keep rates close to zero, but inflation fears continue to swirl in financial markets. Getting the best return with better quality debt makes VRP an ideal solution in the midst of uncertainty.
“While long-term bond yields have stabilized in recent months, historically high levels of monetary and fiscal stimulus continue to fuel a heated debate in the market over the future course of inflation and interest rates. Wrote Jason Bloom, senior director of Global Macro at Invesco. ETF Strategy, in a blog post. “Whether or not inflation becomes an issue in the years to come, the recent surge in consumer prices has made the preservation of purchasing power a hot topic in our daily conversations with our customers. “
“And we therefore take this opportunity to highlight some potential opportunities to help increase portfolio income in a form that potentially insulates your portfolio from the effects of rising interest rates,” Bloom added. “In particular, we are highlighting longer maturity BulletShares corporate ETFs, as well as higher yielding portfolios targeting floating rate senior securities, investment grade floating rate debt and high efficiency. “
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