Tue, 06/05/2014 - 06:00
Invesco PowerShares Capital Management has launched the PowerShares Variable Rate Preferred Portfolio (VRP) on the NYSE Arca, providing investors with exposure to a portfolio of variable-rate preferred securities.
"We see strong demand for variable-rate preferred securities that offer the potential for high income and less interest rate risk than fixed rate preferred securities in this current market rate environment," says Dan Draper, Invesco PowerShares managing director of global ETFs. "As the first variable-rate preferred ETF, VRP is designed to help investors meet their risk and return objectives."
Variable-rate preferred securities are typically issued at rates below fixed-rate preferred securities of similar quality, in exchange for the issuer bearing most of the risk for changes in interest rates.
In the rising interest rate environment, their risk/reward profile and tendency to trade on a yield-to-call basis may provide variable-rate preferred securities the potential to outperform the fixed-rate preferred market. Typically, variable-rate preferred securities exhibit less sensitivity to interest rates than preferred securities which is an important feature for investors interested in building a more diversified income portfolio.
The PowerShares Variable Rate Preferred Portfolio (VRP) is based on the Wells Fargo Hybrid and Preferred Securities Floating and Variable Rate Index. The fund will generally invest at least 90 per cent of its total assets in preferred securities that comprise the index. The index is a market capitalisation-weighted index designed to track the performance of preferred stock, as well as certain types of "hybrid securities" that are functionally equivalent to preferred stock, that are issued by US-based or foreign issuers and that pay a floating or variable rate dividend or coupon.
"The Wells Fargo Hybrid and Preferred Securities Floating and Variable Rate Index is designed to track a unique segment of the preferred market that offers both significant income potential and reduced interest-rate sensitivity," says Daniel Forth, head of strategic indexing at Wells Fargo. "We are excited to partner once again with Invesco PowerShares to meet the needs of today's investors."
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