AlphaPro Management Inc. has launched what it says is Canada’s first actively managed preferred share exchange traded fund, the Horizons AlphaPro Preferred Share ETF.
The new ETF began trading Tuesday on the Toronto Stock Exchange under the symbol HPR. The sub-advisor fund is Montreal’s Natcan Investment Management Inc., which currently manages more than $1 billion dollars in preferred share assets.
“We’re very happy to be working with Natcan once again. Their fixed income team has done a great job in managing the recently launched Horizons AlphaPro Corporate Bond ETF, Canada’s largest actively managed ETF. We expect more of the same with the Preferred Share ETF based on our belief that an active strategy can overcome many of the limitations found in trying to replicate a preferred share index,” said Ken McCord, president of AlphaPro, in a release.
The investment objective of the fund is to provide dividend income while preserving capital by investing primarily in preferred shares of Canadian companies. The fund may also invest in preferred shares of companies located in the United States, fixed income securities of Canadian and U.S. issuers, including other income generating securities, as well as Canadian equity securities and exchange traded funds that issue index participation units. The fund will, to the best of its ability, seek to hedge its non-Canadian dollar currency exposure to the Canadian dollar at all times.
Natcan anticipates yields on investment grade preferred shares will stay strong over the next two years and that the asset class will likely continue to see a growth in interest from income seeking retail investors, many of whom are looking to increase their income in retirement. This process could be accelerated by the phase-out of many income trusts in 2011 and beyond.
“Preferred shares really hit a sweet spot for many Canadian investors,” McCord said. “They offer attractive, tax-efficient yields and are generally less volatile than common shares. For investors with a need for income and an appropriate risk tolerance, preferred shares can be a very effective investment solution.”
Toronto’s BlackRock Asset Management Canada Ltd. launched a passively managed preferred share ETF on Monday — iShares S&P/TSX North American Preferred Stock Index Fund (CAD-Hedged) (TSX:XPF).