FPE: A Unique Approach To Generating Income


  • FPE offers investors a high yield, low volatility, and a steady income.
  • FPE is significantly more diversified than competing preferred stock ETFs.
  • FPE's high expense ratio and comparatively risky credit rating may put off some investors.

Investment Thesis

Last summer, I wrote two articles for Seeking Alpha in which I examined six of the most popular preferred stock ETFs. In the first of those articles, I took a look at the Invesco Preferred Portfolio ETF (PGX), the iShares Preferred and Income Securities ETF (PFF), and the VanEck Vectors Preferred Securities ex Financials ETF (PFXF). In response to a lively discussion in the comments of that article, I penned a second article in which I looked at another three preferred stock ETFs that, in my estimation, were somewhat less appealing.

A few months later, in November, I was invited to revisit PFXF in a follow-up piece for Seeking Alpha. Then, in February, I was invited to revisit PGX. This past July, I published an article in which I re-examined PFF and a follow-up in which I took a closer look at the SPDR Wells Fargo Preferred Stock ETF (PSK). Last month, I published a third article on PGX in which I examined some of the developments that might be of interest to investors considering initiating or expanding a position in the fund.

From time to time, readers would email me or send a direct message to my Twitter account to ask about preferred stock funds I had not yet covered for Seeking Alpha. Motivated in part by some of those messages, I decided to take a look at the First Trust Preferred Securities and Income ETF (NYSEARCA:FPE) for the eighth article in this series.

Unlike the funds featured in the previous articles, however, FPE is not a pure preferred stock ETF. Rather, the fund's basket of holdings includes both preferred stock and convertible bonds which, while sharing some similarities, are distinctly different investment vehicles. This article will consider the benefits and drawbacks of FPE, as I see them, to determine if the fund is a good

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This article was written by

The Low-Budget Dividend Investor is your prototypical Generation X-er: an over-educated, under-funded middle-aged guy looking for ways to increase his income in a difficult economic environment. He favors the conservative, income-generating strategies more frequently associated with those portfolios belonging to people twenty or thirty years his elder while still acknowledging the wisdom of the growth investors ten years his junior.

Disclosure: I am/we are long PGX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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