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First Trust Launches The First Trust Institutional Preferred Securities And Income ETF: (FPEI)
FYI: “The new fund, FPEI, will be a pure play on the institutional preferred securities market, which is not easily accessible to retail investors and that we believe offers great value in the current market environment from both an income and relative value standpoint” Regards, Ted http://www.businesswire.com/news/home/20170824005691/en
Al on M* brought this up; according to his post, "institutional" means not listed on an exchange. (I know nada about buying preferred shares retail, so I'm no help on this.)
@MFO Members: Institutional preferred stocks are private placements to large institutional investors, in denominations of $1000. And these are most often the preferreds that rest in favor of the holder as interest rates rise. They are not available to individual investors. Regards, Ted
Preferred stocks are said to be targeted at institutions if they have a $1k par value? These just sound like vanilla bonds, most of which have a $1K face value.
Admittedly most preferred stocks, unlike most bonds, are for smaller denominations. But the vitality of the bond market, especially munis where individual investors tend to dominate, illustrates that a $1K denomination isn't really much of a deterrent to individual investors seeking income streams.
Institutional preferreds tend to be sold OTC, just like bonds, not via private placements. From the summary prospectus: "Institutional preferred securities are targeted to institutional, rather than retail, investors, are generally traded over-the-counter and may also be known as “$1,000 par preferred securities.”
FWIW, what came to my mind is that the tax treatment for corporate investors in preferreds is usually more favorable than the tax treatment to individual investors. In that sense, one can say that most preferreds are targeted to institutional investors (like insurance companies and banks).
An insurance company in the 35% tax bracket would pay only 10.5% tax on the dividends, because 70% are excluded. In contrast, the typical individual investor would pay 15%, 25%, 28% or even more. Just as munis are "targeted" to high income investors (because they get a bigger tax advantage from the tax-free nature of munis), vanilla preferreds may be said to target institutional investors, since institutions get a bigger tax advantage than individuals.
There's a relatively new type of preferred (about a quarter century old) that does puts individuals on a level playing field. It's sometimes called a hybrid preferred stock and more formally called a fixed rate capital security (FRCS). No 70 percent exclusion here. I'd guess that this fund stays away from these preferreds.
Here's an old AAII article describing the structure of FRCSs noting that "Monthly income preferred securities (MIPS) are geared as a fixed-income alternative for retail investors."
Comments
"institutional preferred securities market" .... is that marketing piffle? Their fact sheet suggests it's loaded with stuff anyone can ask for/buy if they know where to look, yes? (http://www.ftportfolios.com/retail/etf/etfsummary.aspx?Ticker=FPEI)
Regards,
Ted
FPEI Fact Sheet:
https://www.ftportfolios.com/Retail/Etf/EtfSummary.aspx?Ticker=FPEI
I've owned 1000$ denominated preferreds before ... but sure, they're probably out of the range of most people.
Admittedly most preferred stocks, unlike most bonds, are for smaller denominations. But the vitality of the bond market, especially munis where individual investors tend to dominate, illustrates that a $1K denomination isn't really much of a deterrent to individual investors seeking income streams.
Institutional preferreds tend to be sold OTC, just like bonds, not via private placements. From the summary prospectus: "Institutional preferred securities are targeted to institutional, rather than retail, investors, are generally traded over-the-counter and may also be known as “$1,000 par preferred securities.”
FWIW, what came to my mind is that the tax treatment for corporate investors in preferreds is usually more favorable than the tax treatment to individual investors. In that sense, one can say that most preferreds are targeted to institutional investors (like insurance companies and banks).
An insurance company in the 35% tax bracket would pay only 10.5% tax on the dividends, because 70% are excluded. In contrast, the typical individual investor would pay 15%, 25%, 28% or even more. Just as munis are "targeted" to high income investors (because they get a bigger tax advantage from the tax-free nature of munis), vanilla preferreds may be said to target institutional investors, since institutions get a bigger tax advantage than individuals.
Piper Jaffray, Prfeferred Stock: Stocks That Act Like Bonds
There's a relatively new type of preferred (about a quarter century old) that does puts individuals on a level playing field. It's sometimes called a hybrid preferred stock and more formally called a fixed rate capital security (FRCS). No 70 percent exclusion here. I'd guess that this fund stays away from these preferreds.
Here's an old AAII article describing the structure of FRCSs noting that "Monthly income preferred securities (MIPS) are geared as a fixed-income alternative for retail investors."
AAII Journal (July 1997), Hybrid Securities: A Basic Look at Monthly Income Preferred Stock