Growing affinity is a visible trend for these Super Income Funds that perfectly emulate a bond in terms of volatility providing regular monthly pay outs and yields that smash through the 6% barriers with natural ease.
An Omni-present lure of a regular and fixed income has always kept Low Volatility Bonds' and the Organized Banking products' ranking high for their popularity among systematic investors, although both assets have been a continuous disappointment for acquirers who recently bore an utterly lack luster year, worst hit being the ones who are nearing closures of their retirement plan funding. Many of whom, are now buying into benchmark bound Preferred Securities ETFs to maximize yields at lowest risks involved.
Looking ahead in 2013, risk indulgence might as well be a rare commodity among investor types. Equity markets around the globe are uncertain and April 2013 onwards, it is quite understandable that under the weight of Euro Gloom, American economy along with those of the emerging markets may be struggling for most of the coming year. Of course there are the frontier economies and their bonds, but the attached risk makes them unsuitable for comparison in this respect. Concurrent times that coexist with lowest risk appetites are best spent with income sharing friends. Several ETF options are available which may enable with a higher yield than most corporate bonds and without any superfluous risk inherent in individual stocks.
Understanding the product is simple. Most listed companies issue two types of stocks- common and preferential. Though only the common stock holders have voting rights in the corporation, both the holdings represent an ownership stake. In case of a company's liquidation the preference stake holders can claim assets along with enjoying benefits like higher pay outs than the dividends received by the common holders.
Though the common holder receives compensation only once the preference participants/stock-holders are duly satiated but the idea does not coincides with a sustained value growth approach because the scope for price appreciation and extent of liquidity are lesser vis-à-vis active stocks which most certainly carry higher risks.
Highest dividend sharing stocks that churn out 4-6% yields are easiest to acquire through index funds. Direct exposure which would mean research work for stock picking and documentation for foreign investment is easily avoidable from broader perspective. S&P Enhanced Yield Northern America Preferential Stock index gives a wide spread spectrum comprising of top 50 North American (USA and Canada) preferred stocks that deliver the highest yield to its holders. HSBC Holdings PFD, which is part of the index among others stocks, posted a +7% yield for the gone year.
A balanced approach to this sector can be achieved through Global X preferred stock mutual fund (NYSEARCA:SPFF). This fund has a big allocation towards the financial sector (74%); insurance companies (8%) and REITS (real estate 6%) too have a significant share. The top yielding stocks in the SPFF portfolio aim at increasing the fixed income potential. Other options in this segment include country based funds like CNPF which focuses on Canada and Vector issued PFF ETF, which follows the same notion as with SPFF in terms of regular payouts but tracks the S&P USA Index.
ETFs holding Preferred stocks stand out due to their unmatched returns in the slow markets. Regular dividend distribution and bond like traits surely make a compelling case for the scheme; however these bonuses may not arise when the company earns a larger profit and the stock price growths too are marginally shared with the favored stake holders.
Global X Preferred Share ETF yields as per the actual performance of the S&P North America Preferential Index. The benchmark median is a fair representation of the high yield preferred ETF paying securities from America and Canada. Notably, market regulators in both the countries insist on regular sharing, keeping ETF managements under pressure