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Trading began today for BlackRock Canada’s new iShares S&P/TSX North American Preferred Stock Index Fund (CAD-Hedged), trading under the ticker XPF on the Toronto Stock Exchange. The ETF is roughly half invested directly in Canadian preferred shares, with the rest in U.S. preferreds via the iShares S&P Preferred Stock Index Fund. US dollar exposure is hedged back into the Canadian dollar. The management fee is 0.45% plus taxes. As the press release notes, preferred stock is a kind of hybrid asset class that combines some characteristics of both equity and debt securities, and generally creates regular income. In taxable accounts, Canadian preferred shares provide tax-advantaged income because they qualify for the dividend tax credit.
US preferreds yield more but not tax advantaged
The US preferreds do not generate tax-advantaged income but their current pre-tax yield is 7%, higher than the 5.3% average for Canadian preferreds. The US preferred market is broader and more diversified, with 226 holdings from 79 issuers. That compares to just 119 holdings from just 27 Canadian issuers. By indexing the entire North American market, XPF becomes “a useful asset for boosting income in a risk-controlled fashion,” said iShares director of product management Oliver McMahon.
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