The new iShares International Preferred Stock Index Fund (IPFF) is a unique exchange-traded fund (ETF) that allows investors access to international preferred shares that trade on foreign exchanges. IPFF, which launched on Nov. 15, gives investors a way to access preferred shares primarily in the financial sector, but also includes smaller positions in energy, utilities, consumer discretionary and telecom.
IPFF seeks investment results that correspond generally to the price and yield performance, before expenses and fees, of the S&P International Preferred Stock Index. The underlying index measures the performance of approximately 50 preferred stocks trading on non-U.S. developed market exchanges, as defined by S&P Indices.
Most of the S&P International Preferred Stock Index is focused on foreign financials, but they are predominantly in stable, non-emerging market countries such as commodity-rich Canada. Indeed, 73.74% of the ETF’s holdings currently are in Canada. The top 10 holdings of IPFF are: Swedbank AB-PRF, 4.41%; Kiwi Capital Securities, 3.94%; Quayside Holdings, 3.87%; TransCanada Corp, 2.77%; Manulife Financial Corp, 2.29%; Canadian Imperial Bank, 2.20%; Royal Bank of Canada RY 6/ 1/4, 2.11%; Toronto-Dominion Bank, 2.10%; Bank of Montreal BMO, 2.08%; and Royal Bank of Canada, 2.02%.
In case you are unfamiliar with preferred stocks, I will describe them briefly for you. They pay a specified dividend to the owners of such shares before any dividends can be paid to those who hold common shares. Preferred shares also take precedence over common shares if a company is liquidated, so they are senior to common stock in the pecking order of distributing what is left of a failed company.
The flipside of preferred shares is that they are non-voting, and trade more like fixed-income investments than equity shares. That means they don’t have as extreme a risk-reward profile as common shares. Understanding the key differences between common and preferred shares is important before determining if an ETF such as IPFF is right for you.
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