The Global X U.S. Preferred ETF (PFFD) is likely to gather significant assets due to its low fees. According to the SEC filing, PFFD will have an expense ratio of just 0.23%, making it the lowest-cost preferred stock ETF in the U.S. investment landscape.
The fund will track the BofA Merrill Lynch Diversified Core U.S. Preferred Securities Index, and list on the BATS exchange. The tracking index invests in a wide variety of U.S.-listed preferred shares, which includes floating-rate, variable-rate, and fixed-rate preferred securities, along with cumulative and noncumulative preferred securities, as well as trust preferred securities, according to the prospectus.
To meet eligibility requirements, securities must meet certain minimum price, liquidity, and maturity thresholds. They also must have at least $100 million outstanding.
Components within the portfolio are weighted by their amount outstanding, pricing, and accrued interest. This is very similar to a traditional market cap weighting that you’d see in a typical equity index, such as the S&P 500. Individual issuers are capped at a maximum of 10% of the index at each rebalancing, which occurs quarterly.
Getting back to PFFD’s low fees, its 0.23% expense ratio is less than half of that of the biggest ETF in the space, the $18.5 billion iShares U.S. Preferred Stock ETF (PFF) (0.47%), and much lower than the second largest fund, the PowerShares Preferred Portfolio (PGX) (0.50%).
Global X’s current largest fund, the $966 million The Global X Superdividend ETF (NYSE:SDIV), was unchanged in premarket trading Friday. Year-to-date, SDIV has gained 9.38%, versus a 12.92% rise in the benchmark S&P 500 index during the same period.