Two indices launched on Friday by Germany-based Solactive AG bring to the Canadian market a new smart beta approach to investing in U.S. preferred shares.

Specifically, Solactive US Preferred Share Select Index and the Solactive US Preferred Share Select Hedged to CAD Index track the performance of higher dividend paying U.S.-listed preferred shares that have been selected based on a set of market-cap, quality and liquidity screenings.

Solactive US Preferred Shares Select Index is a net total return index denominated in Canadian dollars. The weighting scheme is based on the dividend yield of index components with a 3% cap per issuer to avoid concentration. The composition is readjusted quarterly. For inclusion, issues must meet a minimum market capitalization of US$100 million and a minimum monthly volume traded over the last six months of 250,000 shares.

Solactive US Preferred Share Select Hedged to CAD Index takes the concept a step further by adding a currency hedging to Canadian dollars through FX forward contracts. Its composition is readjusted monthly.

These indices are used as the underlying indices for Toronto-based Global Asset Management’s BMO US Preferred Share Index ETF (ZUP/ZUP.U) and BMO US Preferred Share Hedged to CAD Index ETF (ZHP).