Those seeking an Exchange Traded Fund (ETF) option in the fixed income space certainly have a number of great choices.
The range of options are ever-increasing in this current economic environment, in which many investors are choosing to lower their fees in a bid to increase returns of portfolios which are otherwise passive but are looked to for income in retirement.
In the fixed income ETF space, one option I’ve been looking at is the BMO Laddered Preferred Shares ETF (TSX:ZPR). This ETF is a high-yield option for those investors willing to take on a slightly heavier risk profile in a bid to reach for more yield.
The preferred shares held by this ETF include a mix of floating rate preferreds as well as conventional fixed rate preferred shares. The floating rate preferreds generally have not performed well in this environment, as lower interest rates have hurt these variable products significantly.
Additionally, in general, preferred shares do tend to act like equity under duress (in periods like now) because these securities rank behind other commitments in the capital stack.
These two factors have led the ZPR to drop around 40% from its peak, at the time of writing. This is a substantial drop, given the fact that I do see outsized upside potential for these preferred shares, relative to common stock coming out of this mess.
I do believe most investors will want only the safest equity first, with a risk-off attitude likely to persist for a few quarters, or potentially, years.
Invest wisely my friends.
