Preferred shares come with price volatility

Article Excerpt

Preferred shares are equities that pay fixed dividends without offering investors voting rights. Still, those payments are made before dividends to common shareholders. While investors are attracted to “preferreds” for income, those shares are sensitive to the movement of interest rates and their prices can be volatile. Here are two ETFs that focus on preferred shares issued by Canadian companies. BMO LADDERED PREFERRED SHARE ETF $12 (Toronto symbol ZPR; TSINetwork ETF Rating: Conservative, Market cap: $2.2 billion) invests in Canadian floatingrate preferred shares. Generally, they benefit from rising interest rates. The ETF invests in rate-reset preferred shares (see box) and allocates roughly 20% of its assets to each year of a five-year term. That means 20% of the fund will reset rates every year. The goal is to reduce interest rate risk, but the “laddered” structure causes the fund to trade its holdings regularly, which increases its costs. This is a portfolio of 182 different preferred shares. The top issuers are Enbridge…