BMO S&P/TSX Laddered Preferred (ZPR.TO)

Preferred ETF recommendation? He likes this one. The problem with preferreds is that you get the ones that have a perpetual rate return, and in a volatile interest-rate market, you can get killed. This one does not have the perpetuals.

Preferred Share ETF. There is a new variety in Preferreds called ‘Rate Reset’. These are the best in rising interest rates, although they don’t make you immune to them. ZPR is a laddered reset preferred and would be the best one to use.

Charges more fees to buy a smaller portion of the market.

Preferred shares pull back with rising interest rates. For clients that want fixed incomes, she has put them into preferred shares, but that is really 20% of an overall portfolio because preferred shares tend to be less liquid. She would not recommend more than 20%-25% of preferred shares in any portfolio. Her preference is still preferred shares, over bonds or perpetuals. Rate Resets are better and Retractables are even better but there aren’t many Retractables out there.

These are preferreds that are maturing each year for the next 5 years. As one matures today, another one is bought 5 years out. A lot of these are rate-resets and some of them have not been reset, which means that have been redeemed, which is probably a good thing. On the Federal Reserve talk in August about tapering created a spike up in the 10 year treasury. That caused a lot of interest-bearing securities to come off. Still likes this very much. 4.66% yield.

Preferreds. Not a lot of growth potential. Stable ETF for the next year or so and he would be okay owning some here.

This is interesting, because what they have done is to delete a lot of the perpetuals in this ETF. Likes it simply as a tax treatment. However, it is vulnerable. Likes the structure of it.

Has a lot of rate-reset laddered 5 years, which he prefers. There is an active ETF that is a little bit better. He still expects US 10 year to go up a bit more so there is still some more paid here. It is probably due for a rebound soon. 4.5% yield.

Not sure of the exact composition of this one but, in general, preferred securities rank as somewhat of a hybrid security. In an environment of people looking for income, they are a very attractive part of the capital structure of the company. You don’t have all the exposure and volatility of a common equity but you are getting a higher rate of return and if you could buy the bonds of the issuing company. The plus is that you get a slightly higher running yield and on a laddered format you are always replacing preferreds as they come due. The downside is that you don’t actually have any upside exposure. Preferreds have the unique characteristic that all the odds are in favour of the issuer.

The fact that they are all rate resets probably means that the ladder will stay intact. If there are many bank resets in this one, a lot of them will be called in the next couple of years. It’s a better way of playing the Preferred market because your risks are spread out as to the potential maturity of the resets and the quality is pretty good. He is not wild about Preferreds but doesn’t see a whole lot of downside risks.

Never been a big fan of preferred shares because they are sold subject to interest rate changes. However, in this case they have gotten rid of the perpetual rate preferreds so there won’t be the same vulnerability to an increase in rates. About 70% of this is in P1s andP2s which is good. Likes the product.