CNPF: US-Listed Canadian Preferred Stock ETF


Global X Funds, the New York based provider of exchange traded funds, today launched the Global X Canada Preferred ETF (Ticker: CNPF). This is the first ETF to target Canadian companies that issue preferred stock.

For investors seeking income, preferred shares are an asset class worth considering due to their unique combination of bond and equity characteristics. Like bonds, preferred shares generally pay stable dividends with more frequent distributions than common shares. Like equity, preferred shares trade on an exchange and have the potential to appreciate in value, offering additional income growth potential for investors. Moreover, preferred shareholders have priority over common shareholders with regard to claims on company earnings and assets, which provide some downside protection.

In addition, preferred shares of Canadian companies offer investors an opportunity to diversify outside the U.S. and increase their international issuer and currency exposure, which may help reduce overall portfolio risk. A shrinking budget deficit paired with strong economic growth and higher commodity prices make Canada a strong contender for investment dollars when compared to the current budget and debt issues of its southern neighbor (Wall Street Journal, 2011).

“CNPF provides a relatively efficient way for investors to reap the benefits of this hybrid asset class as well as receive international exposure via the Canadian issuers traded on the Toronto Stock Exchange,” said Bruno del Ama, chief executive officer of Global X Funds. “We are pleased to expand our global offering to income generating asset classes.”

The Global X Canada Preferred ETF tracks the Solactive Canada Preferred Stock Index, which is designed to measure the performance of preferred stocks from Canadian issuers traded on the Toronto Stock Exchange. The Underlying Index does not seek to directly reflect the performance of the companies issuing the preferred stock. The Underlying Index is comprised of preferred shares that meet certain criteria relating to size, liquidity, issuer rating, maturity and other requirements as determined by Structured Solutions AG. As of May 16, 2011, the three largest components of the index were Transcanada Corp., Manulife Financial Corp., and Canadian Imperial Bank.

I can think of some people who just may take issue with the statement that “This is the first ETF to target Canadian companies that issue preferred stock.”! Michael Johnson of ETFdb notes:

There are multiple ETFs listed in Canada offering exposure to the country’s preferred stock market; the Claymore S&P/TSX CDN Preferred Share Trust has more than $600 million in AUM, and the actively-managed Horizons AlphaPro Preferred Share ETF (HPR) is another options for accessing this asset class. iShares filed earlier this year for an international preferred stock ETF that would include a heavy tilt towards Canadian securities, along with issuers from Japan, New Zealand, and the U.K.

The Solactive Canada Preferred Stock Index is admirably transparent. The indexing agent is Structured Solutions AG, which is based in Frankfurt. My, aren’t we getting international! They appear to do a lot of business with Global X, a New York based firm that has a hatful of thinly sliced ETFs.

At 58bp, this ETF doesn’t have anything special going for it on the fee side. I have not yet checked – and may never check! – the composition of the index, so I won’t comment on that. I am also being lazy and not checking whether Canadian dividends will retain their character for Canadian investors when routed through a US ETF, but it’s something I would find out before plunking any money down! In the meantime, I’m wondering (a) why Americans would buy Canadian preferreds on a passive basis, when they have no tax advantage, and (b) when the first Canadian listed US Municipal bond ETF will start up.

Barron’s gave the fund a civil mention. ETFdb reports the fund has $3.75-million in market cap.

CNPF is NYSE listed and, according to Yahoo!, closed today at 14.20-12, 10×2. If that spread is any indication of normality, it might be fun to make a market in it!

Many thanks to Assiduous Reader NS for bringing this to my attention. He’s wondering whether this listing is a sign of doom … maybe it is, but more likely for the increasingly ridiculous ETF market than for Canadian preferreds.

2 Responses to “CNPF: US-Listed Canadian Preferred Stock ETF”

  1. gsp says:

    I’m sure you’ll be shocked to know this ETF shut down last year.

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