{"id":50599,"date":"2019-08-23T21:36:00","date_gmt":"2019-08-24T01:36:00","guid":{"rendered":"https:\/\/prefblog.com\/?p=50599"},"modified":"2025-11-11T21:37:54","modified_gmt":"2025-11-12T02:37:54","slug":"a-close-up-look-at-preferred-share-etfs-a-mega-hit-with-investors-turned-surprise-money-loser","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=50599","title":{"rendered":"A close-up look at preferred share ETFs, a mega-hit with investors turned surprise money-loser"},"content":{"rendered":"

Rob Carrick was kind enough to quote me in his piece A close-up look at preferred share ETFs, a mega-hit with investors turned surprise money-loser<\/a>:<\/p>\n

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The people selling preferred shares and the ETFs that hold them include investors who used rate reset preferreds as a way to profit from rising interest rates, said James Hymas, a preferred-share specialist who manages the Malachite Aggressive Preferred Fund for high-net-worth investors.<\/p>\n

\u201cThe other class of sellers are people who are selling just because these shares are going down,\u201d Mr. Hymas said. \u201cThey\u2019ve take pretty significant losses in the last eight months or so and they\u2019re saying, \u2018I\u2019m out.\u2019\u201d<\/p>\n

Mr. Hymas\u2019s guideline for investing in preferred shares is that you should only use money you\u2019re pretty sure you\u2019re not going to need for 10 years or more. That way, you can ride through the periods of volatility that seem to be inevitable in a world where interest rates keep defying expectations. Pref shares are particularly attractive in non-registered accounts, where the dividend tax credit applies.
…<\/b>
Bond yields could definitely fall further, so there\u2019s a risk that the yield from rate reset preferreds might be lower still. But Mr. Hymas points out that there\u2019s nothing exceptional about holding income-producing investments that renew at lower yields.<\/p>\n

This happens all the time when investors use five-year ladders of guaranteed investment certificates. That\u2019s where you invest equal amounts in GICs with terms of one through five years and then invest maturing GICs back into a new five-year term. Anyone who has done this in recent years knows that it\u2019s common to renew at lower rates.<\/p>\n

It\u2019s also important to understand that the problems faced by preferred share ETFs have nothing to do with the quality of the securities they hold. While Mr. Hymas points out that some less financially solid companies have entered the preferred share market in the past 10 years or so, most issuers are big banks and other blue chips that can be relied on to pay their dividends.<\/p>\n

Preferred share ETFs are a hostage to interest rates, then. The rate reset shares they mostly or exclusively hold are pummelled when rates fall and they\u2019ll have their day when rates rise. \u201cAs a matter of fact, I think they\u2019re going to shine even if things stay the way they are now,\u201d Mr. Hymas said. \u201cI believe they\u2019re totally oversold at this point.\u201d<\/p>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":"

Rob Carrick was kind enough to quote me in his piece A close-up look at preferred share ETFs, a mega-hit with investors turned surprise money-loser: The people selling preferred shares and the ETFs that hold …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[19],"tags":[],"class_list":["post-50599","post","type-post","status-publish","format-standard","hentry","category-press-clippings"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/50599","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=50599"}],"version-history":[{"count":1,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/50599\/revisions"}],"predecessor-version":[{"id":50600,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/50599\/revisions\/50600"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=50599"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=50599"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=50599"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}