World Stock Watch

Unlocking the Potential of Preferred ETFs

Investors seeking high-yielding investments often turn to exchange-traded funds (ETFs) and closed-end funds (CEFs). However, many of these funds suffer from capital and distribution decay, which can erode returns over time. Fortunately, there are strategies that can help mitigate this decay.

The Importance of Active Management

One such strategy involves using rotational approaches instead of holding funds as long-term investments. By actively managing a portfolio, investors can minimize the negative effects of decay and maximize returns. To achieve this, a robust ranking system is essential.

A Proven Ranking System

In 2016, a quantitative analyst developed a 5-factor ranking system to identify top-performing CEFs. After monitoring its performance for several years, the analyst shared the eight best-ranked CEFs with a select group of investors. This system has proven to be effective in selecting high-yielding investments that minimize decay.

Case Study: Global X Variable Rate Preferred ETF

Let’s take a closer look at the Global X Variable Rate Preferred ETF (PFFV), which began operations on June 22, 2020. This ETF tracks the ICE U.S. Variable Rate Preferred Securities Index and boasts a 30-day SEC yield of 7.23%. With a total expense ratio of 0.25% and 56 holdings, PFFV offers an attractive investment opportunity for those seeking high yields.

Expert Insights

According to a seasoned quantitative analyst and IT professional with over 30 years of experience, “By using a ranking system and adopting a rotational strategy, investors can minimize the negative effects of decay and maximize returns.” This expert has been investing in data-driven systematic strategies since 2010 and has authored three books on the subject.

Key Takeaways

• Many high-yield ETFs and CEFs suffer from capital and distribution decay.
• Rotational strategies can help mitigate decay and maximize returns.
• A robust ranking system is essential for identifying top-performing investments.
• The Global X Variable Rate Preferred ETF (PFFV) offers an attractive investment opportunity for those seeking high yields.

By understanding the importance of active management and using a proven ranking system, investors can unlock the potential of preferred ETFs and achieve their investment goals.