Investor Newsletter Published June 25, 2020

One of the more humbling things an income investor can attempt is to manage a portfolio of preferred shares.

Preferreds are more complex than you think and not easy to research because so much less has been written about them in comparison with common shares. If you’re ready to hand the job of managing your pref shares to a pro, long-time preferred share analyst John Nagel has some thoughts for you.

Mr. Nagel, currently managing director of preferred shares at Leede Jones Gable Inc., recently put together a list of seven actively managed preferred share exchange-traded funds that he considers to be well managed. Here are the funds he included:

  • Horizons Active Preferred Share ETF (HPR-T): Mr. Nagel praised the managers of this fund, Fiera Capital, which is one of the country’s largest managers of preferred shares. pegs the dividend yield at 5.8 per cent, and the one-year total return to May 31 was minus 12.8 per cent.
  • Evolve Active Canadian Preferred Share Fund (DIVS-T): Managed by Addenda Capital since April 1. Mr. Nagel said they’ve been investing client assets in pref shares for decades. The yield was 6.3 per cent, while the one-year total return was minus 13 per cent.
  • Dynamic iShares Active Preferred Shares ETF (DXP-T): Mr. Nagel said this ETF can diversify into bonds. Yield of 5.3 per cent, one-year return of minus 12.7 per cent.
  • NBI Active Canadian Preferred Shares ETF (NPRF-T): Capital preservation is a focus of this fund. Yield of 4.5 per cent, one-year return of minus 10.6 per cent.
  • Lysander-Slater Preferred Share ActivETF (PR-T): Mr. Nagel said management focuses on capital preservation and has 20 years of experience in the preferred share market. Yield of 5.7 per cent, one-year return of minus 16.4 per cent.
  • RBC Canadian Preferred Share ETF (RPF-T): Focuses on rate reset preferreds, where the dividend is reset every five years to adjust to changing interest rates. Yield of 6.2 per cent, one-year return of minus 14 per cent.
  • Purpose Canadian Preferred Share Fund (RPS-NEO): Focus on capital preservation and tax-efficient income. Yield of 6.9 per cent, one-year return of minus 16.2 per cent.

A benchmark for these funds would be the S&P/TSX Preferred Share Index, which had a one-year total return to May 31 of minus 10 per cent. You can invest in this index through the iShares S&P/TSX Canadian Preferred Share Index ETF (CPD-T), which has a yield of 5.8 per cent.

— Rob Carrick, personal finance columnist

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