This is an actively managed ETF that does not track a specific index and instead selects institutional preferred securities and income-generating securities at the manager's discretion. The majority of net assets are invested in institutional preferred securities and income-producing debt securities, pursuing total return and current income simultaneously.

It is well suited for investors seeking a stable income stream through bond-like, high-dividend preferred securities, and also serves as an entry point for retail investors who find it difficult to access the institutional preferred securities market directly.

It is an actively managed ETF launched in 2017 by First Trust.

First Trust's fixed income team selectively invests in institutional preferred securities and bond-like income securities across domestic and international financial, utilities, and industrial sectors. By focusing on large-denomination institutional preferred securities traded primarily in the institutional market rather than small-denomination preferred securities traded in the retail market, it seeks a balance between credit quality and yield.

• Differentiated from retail preferred ETFs through its specialization in institutional preferred securities
• Active management enables flexible response to changing credit environments

Assets under management (AUM) stand at $1.9B, with a total expense ratio of 0.85% annually.

Institutional preferred securities represent a market that is difficult for ordinary retail investors to access directly, and FPEI provides an easy access route to this market. While the total expense ratio is on the higher side compared to similar passive ETFs, active management is considered necessary given the niche nature of the institutional preferred securities market.

The preferred securities market carries structural characteristics that make it sensitive to interest rate movements. During rising rate environments, it tends to face price decline pressures as a bond-like asset, while during periods of stable or declining rates, its high dividend yield becomes a relative attraction. Due to the nature of institutional preferred securities, they are also affected by credit spread tightening or widening.

In an environment where demand for high-income assets has continued, preferred securities ETFs broadly have seen sustained inflows. While institutional preferred securities tend to have lower liquidity than retail preferred securities, FPEI's size largely mitigates liquidity concerns. The monthly dividend payout structure continues to attract ongoing interest from income-seeking investors.

Specialization in institutional preferred securities and monthly dividends are strengths, while interest rate sensitivity and the relatively high expense ratio are the main risk factors.

Alternative ETFs and Related Products

Comparable products in the same category shown in the table include INCM, YLD, MDIV, IYLD, and HIPS. INCM and YLD are multi-asset income ETFs that blend various income assets, while MDIV is a composite income strategy covering preferred securities, dividend stocks, REITs, and master limited partnerships. IYLD is iShares' composite income ETF with high allocations to bonds and dividend stocks, and HIPS specializes in high-income pass-through securities such as MLPs and REITs. FPEI stands apart from these by concentrating on institutional preferred securities. As direct substitutes, retail preferred-focused PFF and PFFD, as well as credit preferred-focused PSK, can be considered together, and EPRF, which selects only investment-grade preferred securities, is also a comparable option.

These are the points to review before investing in FPEI. As an ETF specializing in institutional preferred securities, it is important to check the direction of interest rates, the burden of fees, the credit environment, and currency effects in advance.

Preferred securities, with characteristics intermediate between bonds and stocks, face price decline pressures during rising rate environments, and there is also a risk of dividend reductions or suspensions if the issuer's credit deteriorates. Due to the nature of institutional preferred securities, liquidity is lower than retail preferred securities, so larger-than-expected price movements can occur during market shocks.

As a monthly-dividend active ETF specialized in the institutional preferred securities market, it is a suitable choice for investors pursuing both fixed income and capital gains. Considering the higher expense ratio, low-cost passive ETFs such as PFF and PFFD may be more efficient for those simply seeking to track a preferred securities index, while investors who value the differentiated strategy of institutional preferred securities specialization will find it a distinctive option.